INMARSAT PLC ANNUAL REPORT AND ACCOUNTS 2014

Transcription

IN TOUCH_
IN TOUCH_
Imagine a communications company
that empowers global, mobile connectivity
in the most remote locations on earth; that
enables economic, social and cultural change;
that facilitates business and trade, but also
humanitarian efforts, e-learning and e-health
initiatives in previously unreachable locations.
Inmarsat makes this a reality. You can’t touch
our connectivity, but it touches all of us.
Front Cover image: Brian Carlin/Team Vestas Wind/Volvo Ocean Race
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
1
FINANCIAL HIGHLIGHTS
WHOLESALE MSS REVENUE (US$m)
PROFIT AFTER TAX (US$m)
DIVIDEND PER SHARE (¢ (US$))
791.4
341.1
48.94
738.0
762.4
791.4
341.1
44.39
46.61
2012
2013
48.94
217.4
2012
2013
2014
2012
102.6
2013
2014
2014
BUSINESS HIGHLIGHTS
> Global Xpress (GX) regional
commercial services
started on Inmarsat-5 F1
on 1 July 2014
> Inmarsat-5 F2 launched
successfully on 1 February
2015
> European Aviation Network
programme announced;
first licences for the
service acquired
> Acquisition of Globe
Wireless, disposal of retail
energy-related assets and
19% stake in SkyWave
> Issue of $1 billion of 4.875%
Senior Notes due 2022
> Innovative products and
services launched across
all Business Units
STRATEGIC REPORT
GOVERNANCE
OVERVIEW
01 2014 Highlights
02 Inmarsat’s Business Units
10 At a glance
12 Chairman’s review
50
53
56
66
83
STRATEGY
14 CEO’s 2014 review
20 Our markets
22 Our strategy
24 Business model
26 Risk management
29 Business review
38 CFO’s 2014 Financial Review
44 Corporate Social Responsibility
92 Notes to the Consolidated
Financial Statements
131 Company Balance Sheet
132 Company Cash Flow Statement
132 Company Statement of Changes
in Equity
133 Notes to the Financial Statements
134 Glossary of terms
136 Additional information
CONTENTS
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Board of Directors
Report of the Directors
Corporate Governance
Remuneration Report
Directors’ Responsibilities Statement
84 Independent Auditors’ Report to the
Members of Inmarsat plc
88 Consolidated Income Statement
88 Consolidated Statement of
Comprehensive Income
89 Consolidated Balance Sheet
90 Consolidated Statement of Changes in Equity
91 Consolidated Cash Flow Statement
inmarsat.com
2
STRATEGIC REPORT
GOVERNANCE
3
IN TOUCH_
THROUGHOUT THE JOURNEY
We offer the maritime world
reliable satellite connectivity and
technology suites that optimise
their entire operation. Our services
are secure and extend far beyond
the reach of land-based networks
so everyone, not only commercial
cargo and coastal merchant
vessels, can rely on our safety
services to contact rescue
teams quickly.
MARITIME
Read more on page 30.
15 SUCCESSFUL
SATELLITE
LAUNCHES
4
IN TOUCH_
WITH THE WIDER WORLD
We support journalists reporting
breaking news live, humanitarian
agencies coordinating relief
efforts when disaster strikes,
and remote workers in industries
such as oil and gas, construction
and transportation. They have
all come to rely on our services
for dependable, secure
communications in locations
with unreliable or non-existent
telecoms networks.
11 SATELLITES IN
GEOSTATIONARY
ORBIT
ENTERPRISE
STRATEGIC REPORT
GOVERNANCE
5
6
STRATEGIC REPORT
GOVERNANCE
7
IN TOUCH_
WHEN IT MATTERS
We ensure pilots can stay in
contact with air traffic control,
receive real-time weather
information, access the most
fuel-efficient oceanic flight
paths, while data on the aircraft’s
position and maintenance
status is sent to ground staff
to improve safety and efficiency
for airlines wherever they fly.
AVIATION
Inmarsat was the first operator
to comply with the International
Civil Aviation Organization’s
requirements for global
safety communications.
10 SATELLITE
ACCESS STATIONS
8
IN TOUCH_
WITH MAJOR EVENTS
Our Government businesses
are trusted partners to the US
Government and over 100 nations
around the world, providing stateof-the-art satellite services that
offer mission-critical voice, video
and data communications to
support the broadest range of
national security, intelligence,
public safety, health and education
services. Whether responding to
a humanitarian crisis or natural
disaster, peace-keeping in wartorn states or protecting national
borders, our mission is to deliver
secure connectivity when and
where it’s needed.
24/7 SUPPORT
GOVERNMENT
STRATEGIC REPORT
GOVERNANCE
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10
AT A GLANCE
POWERING GLOBAL
CONNECTIVITY
Inmarsat is the leading provider of global, mobile satellite
communications services. On land, at sea and in the air,
the Company serves Government, Commercial and NGO
customers on every continent, providing highly reliable
broadband data and voice connectivity services in regions
where local network connectivity is unreliable or unavailable.
Through Inmarsat’s satellites, users can send data or make
voice calls while outside the coverage of any terrestrial
network. This vital capability has placed us at the heart of
maritime and aviation safety services and positioned us at
the forefront of satellite connectivity services for merchant
shipping, air transport, news broadcast, energy and utilities
companies, mining businesses and humanitarian aid
agencies – to name but a few.
OUR CORPORATE VALUES
PASSION
MARKET-DRIVEN
> Pride in what we do
> A commitment to excel
> Commitment to diversity
> Determination to deliver
> Innovation rooted in customer needs
> Always listening
> Proactive and adaptable
> Delivering enduring value
> Providing dependability
OPENNESS
> Open to ideas
> Open to cultures and personalities
> Open to accountability
> Open to partnering
> Open to a team approach
ENTERPRISING
> Agile and flexible
> Decisive
> Accountable
TOTAL 2014 REVENUE
$1,285.9m
MARITIME
ENTERPRISE
Inmarsat is the leader in global mobile satellite communications for the
maritime industry. Thousands of vessels rely on our unrivalled end-to-end
service availability and coverage for operational communications, crew welfare
and safety services. In the era of the ‘smart vessel’, Inmarsat is working with its
partners and the industry to drive the adoption of new technologies, which
help shipping companies to run a more efficient and cost-effective operation
– saving fuel, time, money and contributing to enhanced crew morale.
Inmarsat provides the widest portfolio of global voice, broadband data, M2M
and value-added services in the market. From oil and gas engineers carrying out
remote diagnostics on an oil wellhead, to journalists reporting live with breaking
news, our services offer a compelling proposition for businesses requiring
‘must-have’ remote and mobile connectivity. Inmarsat continues to expand its
ecosystem of partners, opening up new markets to the benefits of reliable, robust
satellite communications, ranging from e-health and e-learning to the general
business traveller requiring guaranteed connectivity.
+13.5%
292,000
FLEETBROADBAND TERMINALS
ACTIVATED ISATPHONES
2013
2013
35,888
94,000
2014
2014
REVENUE INCLUDING ACQUISITION OF GLOBE WIRELESS
40,469
Learn more about Maritime on page 30
INMARSAT CAPABLE M2M TERMINALS
+13%
115,500
Learn more about Enterprise on page 33
+23%
STRATEGIC REPORT
GOVERNANCE
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OUR LONG-TERM INVESTMENT FOR FUTURE GROWTH
Inmarsat has launched 15 satellites during the last 25 years and has amassed
over 200 satellite years of operational experience during this period. 11 of these
satellites are operational today.
Expected lifespan
of current fleet
1998
INMARSAT-3
2008
2013
INMARSAT-4
INMARSAT-4A
Launched
2005-08
Launched
July 2013
Launched
1996-98
2014
2015
2018
2023
2028 2029 2030
INMARSAT-5 F2
Launched
February 2015
INMARSAT-5 F1
Launched
December 2013
AVIATION
GOVERNMENT
Inmarsat has been providing connectivity and safety services to the aviation
community for over 20 years. For passengers, Inmarsat enables them to make phone
calls and access the internet in the air, just as they would on the ground. For flight
crew, Inmarsat ensures they can stay in contact with air traffic control, receive
real-time weather information, access the most fuel-efficient oceanic flight paths,
and send the aircraft’s position and maintenance status to ground staff. Inmarsat’s
existing satellite networks enable crucial safety services, including flight tracking, which
are fundamental to safe and efficient operation of flights throughout the world.
Inmarsat is a trusted partner for governments, meeting the need for voice, data
and video services which is globally available, entirely reliable and fully secure.
Whether a military commander on operations, a government official responding
to a local emergency or a head of state conducting international affairs,
Inmarsat provides them with essential access to voice and broadband data,
where and when they need it.
+37.7%
>60%
SWIFTBROADBAND ACTIVE SIMS
NEW COUNTRIES OPENED UP SINCE 2012
REVENUE FROM BOTH BUSINESS AVIATION
AND COMMERCIAL AIR TRANSPORT
MSS OPERATORS GOVERNMENT/MILITARY MARKET SHARE 2014
Northern Sky Research (NSR)
2013
4,060
2014
5,400
Learn more about Aviation on page 34
+33%
+24
Learn more about Government on page 37
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CHAIRMAN’S REVIEW
CONTINUED GROWTH
OVERVIEW
ANDREW SUKAWATY
CHAIRMAN
CHAIRMAN’S REVIEW IN SUMMARY
ANOTHER SUCCESSFUL YEAR
FOR INMARSAT:
> BUILT ON OUR REPUTATION AS
A TRUSTED PROVIDER
> CONTINUED GROWTH AND INVESTMENT
> CLOSELY ALIGNED OURSELVES WITH
OUR DISTRIBUTION PARTNERS
> MAINTAINED THE HIGHEST LEVELS
OF GOVERNANCE
> CONTINUED FOCUS ON PROVISION OF
SAFETY SERVICES: ON LAND, AT SEA
OR IN THE AIR
Inmarsat continues to build on our strengths as
a trusted provider of mobile satellite services to
customers who have ‘mission critical’ connectivity
needs, where terrestrial wireless networks are not
present, or are challenged. The niche, which we
have served now for 35 years, continues to grow as
connections in our world become more and more
essential for our business and personal lives. Despite
the challenges presented by government spending
cutbacks by some of our biggest governmental
customers, we have been able to grow in other
sectors, such as aviation and maritime. This clearly
demonstrates the strength of our diverse business
as individual market trends shift.
We strongly believe in the continued growth in global
connectivity, particularly in remote environments.
Therefore we have focused our investment in new
products, services and platforms that address this
trend. As a result, we are on the verge of entering
a new era with the launch of our new Inmarsat-5
global satellite constellation, a $1.6 billion, fiveyear investment programme which will support our
revolutionary high-throughput mobile broadband
service, Global Xpress (GX). With the launch of the
third satellite in the programme just around the
corner to deliver seamless global coverage, we will
offer our customers truly revolutionary broadband
connectivity on land, sea and air across the globe.
For our customers, this takes their mobile satellite
connectivity to the next generation and offers
capabilities in these untethered environments to a
place which was unimaginable only a decade ago.
On the back of these investments, we’ve evolved a
business structure to better align ourselves with our
distribution partners. As part of a broad partnership
arrangement to serve oil and gas customers, we
divested our interests in the oil and gas sector to
our new partner, RigNet, a rapidly growing major
player in this market. At the start of 2014 we
purchased Globe Wireless, one of the major
communications applications providers to the
maritime world. We did this to enhance our capability
to seamlessly work with our distribution partners and
customers as they migrate to new, more advanced
maritime broadband platforms. In addition, we
announced a new programme to develop Europe’s
first hybrid satellite air to ground network using
the S-band authorisation we were awarded by the
European Union a few years ago. We also sold our
shareholding in SkyWave to ORBCOMM and have
as a consequence enhanced our relationship with
them for machine-to-machine (M2M) opportunities.
More details on our strategy are contained in
Rupert Pearce’s CEO section.
STRATEGIC REPORT
GOVERNANCE
At the start of 2014
we purchased Globe
Wireless, one of the
major communications
applications providers
to the maritime world.
We are also pleased to announce that we increased
our dividend for the ninth consecutive year. We
have now delivered dividend increases every year
since we listed on the London Stock Exchange in
2005. The final dividend for the year is 30.26 cents
(US$) per share, which is a 5% increase on last year.
Our stated intent to deliver sustainable dividend
increases continues to deliver value for our
shareholders even through the peak of intensive
investment cycles.
BOARD ACTIVITIES
Your Board continues to add value to the Company
by bringing diverse experience, views and expertise
to the boardroom. Many of our Board members
joined at the time of the IPO in 2005 and therefore
know our complex business well, yet they remain
clearly independent. We have though started the
process of bringing in new members to the Board,
maintaining the strength of thinking and strategic
contribution at the Board table. In 2014 we added
(Ret.) General C. Robert Kehler to the Board, who
brings a global perspective on our government
customer needs. In addition, we’ve announced the
addition of Rob Ruijter as a Non-Executive Director,
who brings a wealth of global financial management
experience, and more recently, we announced that
Dr Hamadoun Touré would be joining our Board.
Dr Touré has spent the last eight years as the Secretary
General of the International Telecommunications
Union and is also deeply experienced in the global
satellite and space industries. Simon Bax, who joined
our Board in 2013, will take on the chairmanship of
our Remuneration Committee in May. Stephen
Davidson, the current chairman, will remain on the
Committee and continue as a Director and we thank
him for his many years of diligent service in this
vital role for us.
As this evolution of the Board membership
occurs, we are focused on maintaining continuity
in understanding the business of the Board, while
at the same time bringing in new and diverse points
of view. In addition, we are maintaining the highest
standards of independent governance. It is a Board
that contributes greatly to the business and it is
a privilege to work with them all.
We conducted an internal evaluation of the
Board during 2014 and can report, while there are
always areas to improve, your Board is functioning
effectively. Our Executive Management team
continues to evolve and perform well.
Rupert Pearce, our CEO, leads the Company, as he
has for three years now, while I have stepped back
into a Non-Executive role as Chairman. We are
pleased that Tony Bates joined us as CFO and an
Executive Director during the year. Tony has already
made a significant contribution to the running of the
Company and we are benefiting from his wealth of
sector experience, both in finance and operations.
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Our commitment to safety in these remote
environments remains strong as we invest in new
safety services. As the only certified GMDSS (Global
Maritime Distress Safety Service) provider, we are
moving forward with plans for how we receive safety
certification for the next generation of Inmarsat
services. This will assure the mariner that we have
invested in maritime safety services capabilities
for many years to come.
PUBLIC RESPONSIBILITY
This year was marked by a tragic event, in which
Inmarsat played a quite visible role: the loss of
Malaysian Airlines Flight MH370. First, our deepest
condolences go out to the families and friends of
those who lost loved ones. Due to the highly unusual
set of events, that have yet to be fully explained,
Inmarsat was put in the role of providing data, to help
locate the aircraft, to the government authorities
in charge of the investigation and now search.
In addition, Inmarsat continues to contribute to
emergency service responders globally. We support,
financially, and with the provision of terminals,
Télécoms Sans Frontières and the International
Telecommunications Union (ITU) programmes,
which provide telecoms connectivity for aid agencies
and stricken people in times of both human and
natural disasters.
Inmarsat was created 35 years ago by the UN to
provide safety services at sea, which evolved to
safety services in the air as well. We take this global
public service seriously and we are dedicated to
providing it. We are proud of the work our teams
have done to support the efforts to locate the
missing aircraft and we hope it will, in some way,
contribute to determining its location, helping
bring closure to the families involved.
Looking forward, Inmarsat is working hard with the
global, regional and national aviation authorities,
to improve the capabilities and standards for
aviation safety. This involves not only flight tracking,
but also real-time flight diagnostics, black box over
the air transmissions (black box in the cloud) and
many other potential enhancements. Most of
these capabilities can be enabled using the existing
communications systems on aircraft, particularly
on long haul commercial aircraft, in which the vast
majority already have installed Inmarsat satellite
services. Let us hope that this tragedy is a catalyst
to taking flight safety, which is already at a high level,
to an even higher level of capability for the future.
Looking forward,
Inmarsat is working
hard with the global,
regional and national
aviation authorities, to
improve the capabilities
and standards for
aviation safety.
Our work with national and local governments
globally also continues to expand, as the importance
of having mobile satellite connectivity in situations
where the terrestrial networks are either taken out of
service, or congested, becomes seen as an essential
element of local disaster planning and response.
SUMMARY
In summary, 2014 was another successful year for
Inmarsat. With the commencement of regional
Global Xpress services, and a host of new service
offerings on our existing L-band satellite
constellations, we are better positioned than ever
to continue as a leader in providing mobile and
portable connectivity on land, at sea and in the air.
We are positioned to grow further as we leverage
future opportunities resulting from the significant
investments we have made.
We would also like to thank our staff globally for
their dedication and hard work that has allowed us
to deliver another year of market-leading quality
services for our partners and customers. We also
value the continued support from our shareholders
and look forward to continuing to deliver value
to them over the coming years.
ANDREW SUKAWATY
CHAIRMAN
5 March 2015
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CHIEF EXECUTIVE’S 2014 REVIEW
DRIVING SUCCESS
THROUGH INNOVATION
BUSINESS OVERVIEW
RUPERT PEARCE
CHIEF EXECUTIVE
OFFICER
CHIEF EXECUTIVE’S REVIEW IN SUMMARY
OUR INVESTMENTS ALLOW US TO
GROW THROUGH:
> MAJOR INNOVATIONS ARE KEY TO
ACCELERATED GROWTH
> INVESTMENT SUPPORTING PRODUCT
AND SERVICE DEVELOPMENT
> ENHANCING GROWTH THROUGH
DIVERSIFICATION AND GEOGRAPHIC
EXPANSION
> STRENGTHENING OUR GLOBAL
CHANNEL WITH NEW PARTNERSHIPS
> EMBRACING ORGANISATIONAL CHANGE
A glossary can be found on pages 134 and 135 of this report.
I am pleased with the overall performance of the
business in 2014, as we met our financial targets
for the year at the same time as continuing to
progress several key innovation programmes that
will play a profound role in our future accelerated
growth plans. 2014 was a year of transition, en route
to the global launch of our revolutionary new
Inmarsat-5 network. We delivered revenue growth
of 1.9% and EBITDA growth of 8% which was a
solid achievement.
> Wholesale Mobile Satellite Services (MSS)
revenue grew year-on-year
> Global Xpress (GX) commercial services started
on Inmarsat-5 F1, our first Inmarsat-5 satellite
> Inmarsat-5 F2 launched successfully on
1 February 2015
> European Aviation Network programme was
announced and the first MSS and complementary
ground component licences were acquired
> Integration of Globe Wireless business within
our Maritime Business Unit has gone well
> Disposals of key assets have been handled
well with no impact on customers
> Innovative products and services launched
across all Business Units
The details of the financial performance for
each of the Business Unit sectors, and our Central
Services sector (which covers all other parts of the
business) is provided in the Chief Financial Officer’s
review of the year. In summary, we saw positive
revenue contributions from our Maritime, Enterprise
and Aviation businesses, plus a significant financial
contribution from LightSquared, reflected in overall
total revenue growth. This was offset by a decline
in Government revenues – albeit that growing
contributions from our Global Government business
stemmed in part the continuing revenue reduction
in our US Government business.
In May 2014 we raised $1bn on the bond market,
which allowed us to review our borrowing
arrangements and put in place cheaper funding.
We were able to complete the bond transaction
quickly and successfully, reflecting the positive way
Inmarsat is viewed by financial institutions.
A significant contributor to revenues and profitability
in 2014 was our collaboration with LightSquared.
Having restarted payments to us under our existing
cooperation agreement with them during 2014,
LightSquared delivered revenues of $75.4m in 2014
almost all of which flows to EBITDA. However, at the
time of writing, LightSquared remains in Chapter 11
bankruptcy in the US and there can be no assurance
STRATEGIC REPORT
GOVERNANCE
We were delighted that the Proton launch vehicle,
which we have commissioned for the first three
Inmarsat-5 flights, has now successfully delivered
into orbit two of the three Inmarsat-5s needed
to ensure seamless global coverage for our
revolutionary high-throughput services.
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Ku-band competitors. This successful provision of
service is a significant risk retirement on one part
of the GX programme and means that we can look
forward with confidence to I-5 F2, also progressing
safely through its deployment and test stages with a
view to entering full commercial service in Q2 2015.
We also have a fourth Inmarsat-5 satellite under
construction (I-5 F4), due to be delivered in mid
2016 and we secured a launch option for this
satellite with SpaceX, a new launch provider for us.
This substantially de-risks the possibility of damage
to the GX programme by a launch failure of I-5 F3,
as I-5 F4 could replace it within roughly a year and
it can provide us with additional capacity for future
enhanced growth when we need it. We are already
developing some incremental business opportunities
for I-5 F4 to support its launch as an additional
satellite in the event of a successful I-5 F3 launch.
In addition to the GX satellite launch and operation
activities, we enhanced our satellite capabilities.
We brought Alphasat into service, supporting
our handheld GSPS services in our most heavily
trafficked satellite region. Alphasat is Europe’s most
sophisticated telecommunications satellite and will
be of significant benefit to us in carrying our L-band
service traffic in the future and providing redundancy
for the Inmarsat-4 satellite constellation.
We also ordered a new satellite, Europasat,
in partnership with HellasSat. It will deliver new
S-band services across the European Union. We
announced in May 2014 the development of a highly
innovative Air to Ground network, to be integrated with
Europasat’s satellite capabilities to target the emerging
European aviation passenger connectivity markets
– a key strategic initiative for us. We will be a leader in
developing an integrated hybrid satellite-terrestrial
network for broadband services.
that further payments will be received from them
under this agreement. We remain fully committed
to supporting LightSquared under the terms of our
agreement with them.
Later in the Annual Report on pages 20 and 21,
we lay out details of the markets we operate in,
the changes we are seeing in how we plan for our
business growth and I also summarise our strategy
and key risks within our operations.
Overall the business has met its objectives
throughout the year and my review will reflect on
the different activities we undertook and also how
the contribution of our staff is critical to our success.
INFRASTRUCTURE INVESTMENTS
It has been a very demanding year from an
infrastructure perspective, as we continue to invest
heavily in transformational future growth. Exciting
news in 2014 was the successful deployment of our
first Inmarsat-5 satellite, called Inmarsat-5 F1 or I-5
F1, which was launched in December 2013; followed
by the successful launch of our second Inmarsat-5
satellite, I-5 F2, on 1 February 2015. We were
delighted that the Proton launch vehicle, which we
have commissioned for the first three Inmarsat-5
flights, has now successfully delivered into orbit
two of the three Inmarsat-5 satellites needed
to ensure seamless global coverage for our
revolutionary high-throughput services. We are
planning for the launch of Inmarsat-5 F3 to take
place in Q2 2015.
I-5 F1 entered regional commercial service mid-way
during 2014 - meaning that, from the Western coast
of Africa to the middle of Australia, we are now able
to offer Global Xpress (GX) services, although not
yet across our full range of planned service offerings.
I am delighted to report that Global Xpress is working
well, with ultra-fast data speeds even to very small
antenna and rain fade resilience at or better than
Supporting our new satellite construction
programmes, we signed an innovative three satellite
launch deal with SpaceX, the new and rapidly
emerging launch services company. This positions
Inmarsat in the vanguard for the use of the new
Falcon Heavy rocket, which we can use for the
Inmarsat-5, and the Inmarsat-6 programme.
Our work is not only about launching and managing
satellites, it is also about safely decommissioning
them when they come to their end of life. In 2014
we successfully deorbited the final one of our
Inmarsat-2 satellites. Once again, this final satellite
in the Inmarsat-2 constellation performed superbly
throughout its life, operating for more than twice its
design life, for over 20 years.
Having a reliable satellite and network capability
which consistently exceeds 99.9% availability, gives
us the comfort that our partners and customers
can rely on us, wherever they are and in whatever
circumstance they need communications
connectivity.
16
CHIEF EXECUTIVE’S 2014 REVIEW CONTINUED
terminate our services in Russia. We hope that their
plans will mature during 2015 and provide future
additional revenue opportunities through opening
up hitherto closed markets.
Elsewhere, our internationalisation programme –
driven by our Global Government group, but
also rapidly driving growth opportunities for our
Enterprise team too – is nearly at the end of a
three-year transformation programme to rebalance
our government and commercial land activities into
new and exciting growth markets. We are now
operating for the first time, or have substantially
enlarged our presence in more than 30 countries
including Brazil, China, Colombia, Israel, Kazakhstan,
Oman, Poland, Saudi Arabia, the Scandinavian
region and Turkey.
GROWTH THROUGH INNOVATION
We increased the pace of product and service
innovation in 2014 and this focus has continued
into 2015 when we held our first successful Inmarsat
Developers Conference in January. We are working
closely with our traditional partners, as well as some
new technology partners. In 2014 we launched
several important new products and services which
we expect to be significant contributors to our
future growth, including:
> IsatPhone 2, our latest high-quality satphone
that we expect to maintain our strong position
in the handheld market;
> FleetOne, a major broadband product launch
into the fishing, leisure and coastal merchant
maritime markets, which we believe is a new
market opportunity for us;
> IsatHub, the first step in the reinvention of the
BGAN product platform, delivering smartphone
coverage extension for voice and data services
at low cost;
> BGAN HDR, taking the BGAN offering up to new
data speeds, of particular significance for Media,
Government and high-end Enterprise customers;
> Low-profile BGAN , offering a highly-rugged,
discreet BGAN deployment for security and
Intelligence, Surveillance and Reconnaissance
(ISR) needs;
> L-TAC, a hugely innovative way in which we can
re-purpose our L-band network to support
thousands of UHF radios already deployed in
the field requiring extension of coverage or
increased network capacity; and
> Fleet Media, an innovative way of distributing
entertainment content (movies, TV shows,
sports and news) to ships‘ crews.
We also have products which have been developed
for use on our GX Ka-band satellites across all
our varying services – on land, at sea and in the
air. Government customers have been using GX
terminals since mid-2014 and other users have been
coming on-stream in early 2015. We are delighted
with the collaboration and efforts of our Value Added
Manufacturing partners for their tireless work with us
over the last 12 months.
I am very proud of our achievements in 2014
and already in 2015 we have really increased the
pace of our product and service innovation. Success
will be measured by our relationships and ability to
work closely and collaboratively with Value Added
Manufacturers and innovators who are committed,
agile, inventive and far-sighted.
GROWTH THROUGH GEOGRAPHIC
EXPANSION
It is vital to create new growth opportunities through
sustained innovation; however we can also deliver
enhanced growth and diversification rapidly through
expanding geographic access to our services.
We opened a brand new GSPS gateway and BGAN
SAS in China at the end of 2013 and these facilities
became fully operational during 2014. This was the
culmination of years of work to deliver a fully-open
market for our services in China and we worked
closely with our local partners to make this a reality.
We believe there are growing revenue opportunities
in China.
We are working closely with one of our key partners
in Russia to assist it in progressing its plans to
build BGAN ground infrastructure to access and
A key goal of ours is to support our growth
ambitions through a strong and positive
relationship with our global channel partners.
Together, these ventures are demonstrating
excellent pipeline growth, so we are optimistic
that we can achieve revenue growth through
geographic expansion.
GROWTH THROUGH CHANNEL
DEVELOPMENT
A key goal of ours is to support our growth ambitions
through a strong and positive relationship with our
global channel partners.
We added several important new partners during
2014 including RigNet, the leading Energy satcoms
connectivity player, ORBCOMM, the leading M2M
connectivity platform operator, and Swank/NT Digital
as the master distributor for our new Fleet Media
content offering. These new relationships provide an
important extension to our global coverage and to
our product and service capabilities. We also benefit
from having relationships with highly capable,
specialist partners to help us in certain geographies
where they have local knowledge.
A focus for us over the last year in particular has been
to ensure we are ready for entry into commercial
service of our Global Xpress service and to do this
effectively, we need to have appointed respected
and capable partners. So far, we have appointed
27 GX Value Added Resellers (VARs) across all our
Business Units, representing an incredibly powerful
roster of launch partners for this new service.
STRATEGIC REPORT
GOVERNANCE
17
EXECUTIVE MANAGEMENT BOARD
RUPERT PEARCE
TONY BATES
MICHELE FRANCI
RUY PINTO
Chief Executive Officer
Chief Financial Officer
Chief Technology Officer
Group Chief
Operations Officer
GREG EWERT
PETER HADINGER
ALISON HORROCKS
DEBBIE JONES
President, Enterprise
Business Unit
President, US Government
Business Unit
Executive Vice President,
Corporate Governance
and Company Secretary
Executive Vice President,
Corporate Development
LEO MONDALE
MIRIAM MURPHY
RONALD SPITHOUT
ANDY START
President, Aviation
Business Unit
Group General Counsel
President, Maritime
Business Unit
President,
Global Government
Business Unit
ORGANISATIONAL DEVELOPMENT
In recent years we have embraced significant
organisational change in order to be a more agile
and fast-moving business. Over the last 12 months
we have created a new Aviation Business Unit which
is led today by Leo Mondale who has been with the
Company for 10 years. As part of our management
succession planning which we review with the
Inmarsat Board on an annual basis, I am delighted
that we were able to promote from within to move
Ronald Spithout from President of our Enterprise
Business Unit to become President of our Maritime
Business Unit and we promoted Greg Ewert
who joined Inmarsat three years ago to head
the Enterprise Business Unit. Another internal
appointment was Michele Franci becoming
our Chief Technology Officer.
Two senior hires from outside the Company were the
appointments of Tony Bates as our Chief Financial
Officer in June 2014 and Miriam Murphy who joined
as Group General Counsel in September 2014. Both
these executives are experienced professionals and
I’m delighted they’ve chosen to join Inmarsat. We will
benefit greatly from their experience. I am delighted
at how the senior management team has responded
to the new challenges I’ve asked them to manage
and I believe the business is well led with the
12-strong Executive team we have in place.
We also undertook a series of internal initiatives
to improve in many ways how we work and function
together; the actions in 2014 are termed our
‘Year of Engagement’ and those in 2015 our
’Year of Enablement’.
We had a staff survey in February 2014 which
was completed by 94% of our staff – a response
rate which is outstanding. In the Corporate Social
Responsibility (CSR) section on pages 45 and 46
more information is provided on the feedback we
received from the survey and the actions we took.
One key indicator was the pride staff feel working
at Inmarsat. One element of the survey was around
pay for staff and during 2014 we completed a global
salary benchmarking review and as a consequence
committed more than was budgeted to correct
salaries for staff to take them to more competitive
levels. After a year where we had a salary freeze in
2013, it was highly appropriate that we were able
to adjust staff salaries in 2014 across the Group
on average by approximately 7%.
The 2014 ‘Year of Engagement’ has transitioned
into our 2015 ‘Year of Enablement’, where we
are embarking on some significant training
commitments for managers throughout the
Company and on focused leadership training for
our Global Leadership Team, comprising around
50 staff members from across the business. Another
focus for the ‘Year of Engagement’ is a thorough
review of our systems and processes with a focus
on how we can simplify operations and become
more effective and efficient internally, for example
through changes in our systems and processes,
IT infrastructure, billing operations and other
similar related activities.
In 2015 we are
embarking on some
significant training
commitments for
managers and on
focused leadership
training for our Global
Leadership Team.
In early 2014 we sold the assets of our retail energy
business to RigNet, a significant oil and gas operator
in the satellite industry, and around 200 people left
Inmarsat with the vast majority moving to RigNet.
We work with many of them now that RigNet is a
distributor of Inmarsat services and we are very
pleased with how our relationship is working. Around
the same time in 2014, we acquired a similar number
of staff in our Maritime Business Unit when staff
joined us from Globe Wireless. We are delighted
how quickly and positively this integration of
staff has happened.
18
LOOKING AHEAD TO 2015
Our heritage of saving lives at sea and in the air
is part of our ongoing public service ethos.
PUBLIC RESPONSIBILITY
Our heritage of saving lives at sea and in the air
is part of our ongoing public service ethos. I provide
some further information about these activities in
the CSR part of this Annual Report. Our satellite and
network services have over many years consistently
delivered availability exceeding 99.9%. The fact that
we are relied on and trusted to operate to this high
level of service is something we take seriously and
operate our systems day in, day out to maintain
this high standard.
The tragic loss of Malaysian Airlines flight MH370
has been an event that has undoubtedly defined
and shaped our year, and which will perhaps continue
to have a profound impact on our reputation, brand,
profile and values.
It is very hard to reflect on 2014 without revisiting
that crisis and the part that we played, and indeed
continue to play, in the search efforts for this lost
aircraft. Looking back I have nothing but pride and
admiration for the teams involved and for how
they responded to events in a sensitive way.
We have thought how we could respond to help
airlines have greater information from their planes,
especially in times of trouble and have made an
offer of free global tracking, enhanced tracking,
and a revolutionary ‘black box in the cloud’
service. We firmly believe that our ADS-C services,
comprising two-way broadband capabilities, can
play a vital role in situational awareness and crisis
response for the commercial air transport industry.
The early signs are that both international safety
bodies such as ICAO and IATA and the world’s
major airlines have welcomed our initiative.
Our CSR report will also provide you with
additional information on our ethical processes
for whistleblowing and similar policies and give you
some further information on our involvement in
social and charitable activities.
We are moving from a year of transition in 2014
to a year of transformation this year, as we initiate
the ramp up of Global Xpress revenues following
global CSI, expected in the second half of this year,
supported by continued growth in our legacy L-band
services. Being predominantly a wholesaler of
satellite airtime, and going to market primarily
indirectly, having strong relationships with our
partners continues to be key to our success.
We have launched I-5 F2 and it is completing its
76-day launch mission before it will become
operational and we are planning for a launch of
I-5 F3 in the second quarter of 2015. Apart from
these satellite launches and deployments, we
must complete the Global Xpress development
programme, widely distribute GX terminals, work
with our GX Value Added Resellers (VARs) to ensure
their market readiness, and crystallise GX market
access such that a full service GX is delivered early
in the second half of this year on a global basis.
Additionally, we aim to maintain the schedule for I-5
F4 and Falcon Heavy launch vehicle readiness both
as a back-up and for network augmentation.
We will also deliver our Alphasat satellite into full
service in Q1 2015 (adding BGAN services over
Alphasat’s coverage area) and launch a fourth
ocean region later in 2015, which will improve overall
L-band network capacity and efficiency, as well as
support the construction and entry into operation
of the new BGAN gateway in Russia which I
mentioned earlier.
We intend to start to replace the Inmarsat-4
satellites gradually from the end of the decade, and
therefore we are planning to complete all of the
Inmarsat-6 design development, so that we are
ready to initiate a development and manufacturing
contract during 2015.
We are also moving forward rapidly with our
European S-band initiative this year. This includes
the satellite manufacturing programme; starting the
Air to Ground network design, development and
deployment by the end of the year; the development
and certification of on-board equipment; and the
addition of launch airlines, as our plans are to be
in revenue generation with airline customers and
passengers with our new integrated aviation
network in Europe by early 2017.
STRATEGIC REPORT
GOVERNANCE
19
In product and service terms, this year is when we
plan to deliver increasing revenue contributions
from the many new products launched in 2014
– especially IsatPhone 2, IsatHub, FleetOne, L-TAC,
BGAN HDR and Fleet Media. 2015 will also see some
very important new product launches too – most
notably perhaps SB200 (a smaller broadband
terminal for aircraft), LAISR and LACE (two new
Government services) and a new M2M device.
2015 will also see us start to galvanise our Value
Added Manufacturer (VAM) community to innovate
new products around the core module of our existing
BGAN systems and terminals. We expect this to
enable us, by the second half of 2016, to launch
a new wave of product and service innovation
leveraged off our own significant platform
investments. This will be an exciting new opportunity
for our BGAN and GSPS service platforms, allowing
us to maintain our thought-leadership for highly
mobile broadband satcoms.
2015 will also see us start
to galvanise our Value
Added Manufacturer
(VAM) community to
innovate new products
around the core module
of our existing BGAN
systems and terminals.
In the solutions development area, 2015 is the
year when we intend to focus attention on our
Certified Application Partner (CAP) programme,
working closely with our channel partners and a
new category of CAP to bring a large number of
third-party applications, services and solutions
onto our new Inmarsat Gateway platform. These
developments will start to drive new value over our
network and to our end user communities. This is
a new business opportunity for us to deliver and is
hugely challenging and exciting – our investment
in Cisco’s development of the Inmarsat Gateway
is now coming to fruition.
We also intend to move
forward rapidly with
our European S-band
initiative this year.
Finally, our geographic expansion programmes
will also continue to evolve, with opportunities
in the BRIC countries to develop local gateways,
and further significant investment by our Global
Government and Enterprise teams on growing
their new expanded market presence.
This is Inmarsat’s formula for success – invest from
strength to grow profitably, take those profits and
repeat the process again. The business model shown
on page 24 captures this ongoing cycle. Near term
growth will drive new longer-term growth opportunities
for us all.
If we accomplish all that in 2015, this is how we can
imagine the business to look as we enter 2016:
2015 is going to be a challenging and compelling
year. Inmarsat’s success is built upon the
professionalism, loyalty and passion of its staff;
the experienced distributors and wider ecosystem
partners we work with and also the backing we have
from investors and financial institutions who support
our growth ambitions by maintaining their
relationships with us.
> Maritime will have grown its core mid-market
business as well as diversified into the VSAT,
mega-yacht, fishing, leisure and coastal merchant
segments to begin the process of dramatically
expanding our addressable maritime markets
and entering a new era of high growth
> Enterprise will have increased the way we are
used by our Media customers, launched into
the Enterprise and Energy VSAT markets, grown
market share in global M2M markets, and begun
the transformation of our core commercial land
markets with exciting new products like IsatHub
> Aviation will have grown our leading business
aviation franchise, focused on thoughtleadership in aviation safety, and successfully
positioned Inmarsat as the global leader in the
emerging aviation passenger connectivity sector
> Global Government will have completed the initial
globalisation of its business and started to leverage
the benefits of its enhanced footprint, and
> US Government and Global Government will
have used GX and numerous innovative products
and services, diversified their businesses and
positioned themselves for growth in government
markets in the future.
20
OUR MARKETS
WE ARE SEEING THREE CLEAR
GLOBAL TRENDS:
> a dramatic increase in mobile traffic, due partly
to strong growth in the number of mobile internet
connections, such as personal devices and
machine-to-machine (M2M) connections,
which will exceed 10 billion by 2018 and be
1.4 times greater than the world’s population
(source: Cisco);
> these devices are being served by an
extraordinary proliferation of solutions, services
and capabilities, increasingly hosted remotely,
often in the cloud; and
> both devices and applications are driving huge
growth in mobile data traffic.
Taken together, these three trends are changing
the way we live our lives, conduct our business,
defend our borders and provide our public services.
We are finding that the satellite communication
needs of our traditional customer communities,
which we have served for over 35 years, are
changing in line with these trends. The 70,000
vessels in the global merchant maritime fleet are
becoming floating nodes on corporate networks
and the 2.5 million crew members serving on those
ships are demanding to be connected with satellite
broadband, many for the first time. In a similar vein,
the more than 20,000 commercial aircraft that fly
over our heads every day are embracing a new era
of safety and greener operations via satellite
broadband connectivity and the hundreds of
millions of passengers who fly on them each year
are demanding to be connected while they travel.
On land, the ’internet of everything’ is demanding
to become the ‘internet of everywhere’, and the
energy, resources, media, aid, transport and
logistics sectors that we have served for many
years are increasingly embracing richer, greener
and more efficient working practices via broadband
connectivity. Government users are at the forefront
of all these trends, requiring highly reliable and
secure, ubiquitous global connectivity wherever
they may go, not just for their strategic and tactical
activities, but also for the morale, welfare and
recreation of their personnel, who these days have
often grown up in an uber-connected environment
and expect that to continue in their workplace.
As well as driving growth in our core business,
these trends are causing the worlds of terrestrial
and satellite broadband to come together in exciting
and novel combinations, playing to each other’s
respective strengths, driving new growth opportunities
for us. In a world increasingly reliant on coverage and
connectivity to perform mission-critical tasks via
applications and solutions in the cloud or a VPN,
our long-established seamless global coverage
and safety services, with levels of reliability and
resiliency across all environments mean that our
mobile satellite services for the first time can offer
a powerful complementary capability to terrestrial
networks, delivering a complete package to end users.
To maximise this latter opportunity, we are ensuring
that our networks are built to common global
technology standards and our products and services
are modular, to ensure that our capabilities are easily
integrated into hybrid satellite-terrestrial outcomes.
This enables them to seamlessly support the
deployment of large-scale terrestrial solutions
and applications.
WE OPERATE IN A GROWTH SECTOR
GLOBAL MOBILE BROADBAND
SHOWING EXPLOSIVE GROWTH
GLOBAL MOBILE DATE
TRAFFIC EXPLODING
Exobytes per month
+61% CAGR (2013-2018)
(Cisco VNI Mobile 2014)
EXPLOSIVE
GROWTH
IN SOLUTIONS
Cloud-based
services
Apps
INCREASING DEVICE
AND SENSOR PENETRATION
Cloud-based services
Internet of Things
STRATEGIC REPORT
GOVERNANCE
21
WE OPERATE ACROSS FOUR KEY MARKET SECTORS:
MARITIME
Provision of voice, high-speed data and safety communications for all vessel sizes
CHALLENGES
> driving growth in user commitment;
> rapid adoption of services and products
in new market areas;
> expanding traditional channel to add
‘Smart Shipping’ enablers;
> expanding our safety services offering; and
> maximising the Global Xpress opportunities.
OUTLOOK
> greater demand for data to be shared
ship:shore:ship and with crew expecting
to be connected;
> increasing regulatory development
encourages need for greater data usage; and
> new products appeal to new target markets
bringing revenue growth opportunities.
KPIs
> 40,469 installed FleetBroadband vessels
> 24% growth in FleetBroadband revenues
> 2,019 installed VSAT vessels
> 26% growth in VSAT revenues
ENTERPRISE
A range of voice and data services for business and individuals operating beyond the reach of land-based terrestrial
communications and where terrestrial services may be unreliable
CHALLENGES
> optimising, supporting and expanding our
global network of channel partners;
> identifying sustainable growth opportunities
across a broad and diverse range of sectors, in
both well-served and under-served geographies;
> being flexible to accommodate an extensive
range of sector specific product and
service requirements;
> identify competitive and innovative ways to
expand the portfolio of solutions by working
with technology partners; and
OUTLOOK
> we are evolving and diversifying with
new product launches in 2015;
> new products will enable broader
market penetration; and
> fast growing ecosystem of existing
and new channel partners will provide
accelerated growth opportunities in
targeted Enterprise verticals.
KPIs
> over 292,000 M2M devices
> M2M revenue increased by 30%
> number of installed IsatPhones
increased by 23%
AVIATION
Voice and high-speed data connectivity for cockpit and cabin, including safety communications
CHALLENGES
> to position Inmarsat as the global leader in
passenger and cockpit connectivity;
> to maximise the opportunity to replicate US
Air to Ground success in the European market;
> balancing requirements which vary significantly
by aircraft and by region: requiring multi-band,
multi-technology solutions; and
OUTLOOK
> ambition to provide an integrated
product portfolio to best serve multiple
connectivity needs of all aircraft types
in any fleet;
> our services will be used to meet
passenger demand for wifi while inflight;
> strong partnerships are enabling our
market penetration.
KPIs
> overall Aviation ARPU grew by 23%
> SwiftBroadband active SIMs grew
by 33%
> SwiftBroadband revenues increased
by 67%
GOVERNMENT
Provision of voice and high-speed data services for governments worldwide, for military and civil programmes
CHALLENGES
> budget issues remain in North America
and Western Europe;
> protect the core revenues through increased
promotion of new products; and
> US Government is moving users to its own
satellites to reduce spending in short-term; and
OUTLOOK
> significant opportunities to connect those
who are unconnected;
> well positioned to take market share in
merging MSS/FSS Government markets; and
> enhancing the capabilities of standard products
and delivering integrated solutions and roles in
enduring programmes.
KPIs
> Global Government presence extended
into 24 countries over last three years
> revenue outside the US increased by 1%
> first GX revenues from US Government
22
A FOCUSED STRATEGY
DELIVERING RESULTS
STRATEGIC ROADMAP TO DELIVER SUSTAINED PROFITABLE GROWTH
OUR VISION:
IN THE LIVES OF OUR CUSTOMERS, THE ROLE OF INMARSAT IS TO POWER
THE BEST GLOBAL SATELLITE SOLUTIONS TO MEET THEIR REMOTE AND
MOBILE CONNECTIVITY NEEDS. WE GIVE OUR CUSTOMERS WHAT THEY
NEED TO CONNECT ANYWHERE, ANYTIME
STRATEGIC OBJECTIVES:
WE HAVE FOUR STRATEGIC OBJECTIVES WHICH DESCRIBE
HOW WE WILL ACHIEVE OUR VISION
1. CONTINUED
L-BAND GROWTH
> Grow value of our core markets
> Innovate to expand beyond
our core markets
> Extend our geographic
footprint
2. CREATION OF A SOLUTIONS
ECOSYSTEM
> New value drivers
and differentiators
> New revenue streams
and business models
3. GROWTH AND DIVERSITY
VIA GX AND S-BAND
> New super-broadband
MSS services
> Diversification into new
user/terminal markets
> Aviation passenger
connectivity in Europe
4. DELIVER SUSTAINED
PROFITABLE GROWTH
> Maintain highly efficient
business model
> Free cash flow expansion
enabling future investment
to deliver growth
STRATEGIC ROADMAP TO DELIVER SUSTAINED PROFITABLE GROWTH
INMARSAT-4
Core L-band services
Highly mobile, agile and resilient
INMARSAT-5
Core Ka-band services
Global Xpress (GX)
High capacity, high speed
EU AVIATION NETWORK
Hybrid network for
passenger connectivity
(S-band)
Safety Resiliency
Coverage
Capacity
Capacity
INMARSAT GATEWAY
Delivering value-added solutions for customers
STRATEGIC REPORT
GOVERNANCE
OUR STRATEGY IS UNCHANGED IN
ITS DIRECTION
Our core strategy – which I set out for you in the
2012 Annual Report in my first year as CEO –
remains unchanged. The only addition is the
S-band initiative in Europe, which is of course a new
programme that we announced in May 2014.
Underpinning our strategy is the unassailable fact
that we live in a hyper-connected world, driven by
three trends:
23
All these customers want to be able to roam
seamlessly from terrestrial networks to satellite
networks and back again, all the time maintaining
a data session and a rich and functional
applications environment.
In this environment, the new keys to
competitiveness are:
> global coverage to meet the needs for ubiquity;
> mobility for an untethered user base;
> high-speed services to meet end-user
expectations;
> high levels of network capacity, to deliver low
cost communications services;
> high reliability and security, to support missioncritical applications; and
> solutions friendliness and simplicity to facilitate
integration and applications compatibility.
> dramatic growth in applications and solutions
(many of them now in the cloud);
> dramatic growth in connected devices and
sensors to support those applications in a
mobile environment; and
> exponential growth in global mobile data
traffic fuelled by the first two trends.
Together these trends are delivering a virtuous cycle
of broadband demand across consumer, business
and government markets. Applications drive devices,
devices drive applications, and both drive bandwidth
and coverage demand – and on the cycle goes.
These new keys to competitiveness are a roll call of
Inmarsat’s capabilities today; indeed they’re part of
our heritage. As such, we are very well-placed to
compete in today’s exciting marketplace.
Seen in this light, our strategy is clear:
> our L-band capabilities deliver agile, global
mobile broadband capabilities to small
form-factor and low-cost devices;
> our Global Xpress Ka-band programme
complements that by delivering ultra-highthroughput, ultra-high-capacity global
mobile broadband to larger and more complex
product platforms, expanding and diversifying
our business;
> our S-band satellite programme enlarges our
connectivity platform for aviation passengers
in Europe via a compelling and
complementary technology; and
> over the top of those three service platforms
we have Inmarsat Gateway to provide us with
a powerful applications enabler to ensure
a high-quality and seamless customer
solutions experience.
Taken together, we believe our strategic goals
more than meet the challenges we face.
WHAT OUR CUSTOMERS WANT
RICH
SOLUTIONS
ANYWHERE
ON THE
MOVE
TERRESTRIAL NETWORK CONNECTIVITY
SATELLITE NETWORK EXTENSION
‘SOLUTIONS ENABLEMENT’
CAPACITY, CAPABILITY AND COVERAGE
‘I WANT TO REMAIN CONNECTED EVERYWHERE I GO’
TO ANY
DEVICE
24
BUSINESS MODEL
WE PROVIDE VOICE AND DATA CONNECTIVITY WHEREVER YOU ARE: ON LAND, AT SEA OR IN THE AIR
We are focused on our customers and how we meet their communication requirements.
> we ensure safety at sea, in the air
and on the land;
> we facilitate business and trade across
the world;
> we support the vital work of
humanitarian organisations;
> we enable economic and social
development in remote regions and
for the most isolated communities; and
> we support governments as a
trusted partner.
> we are a technology Company whose
growth is fuelled by innovation;
> to succeed, we need to out-innovate
our competition;
> customer and market intimacy is key
to successful innovation;
> excellence in operations is key to
delivering successful innovation; and
> we are a customer-focused product
and services business, with technology
at our core.
> our core competence of quality
engineering and technology delivery
is the platform for our aspiration to be
more customer centric in our products
and services innovation;
> we expect our business model to
generate revenues which through
prudent cost management will drive
high operating margins; and
> this generates strong cash flows which
we use to reward our shareholders, our
staff and to reinvest in our business.
OUR BUSINESS MODEL
MARITIME
ENTERPRISE
AVIATION
US
GOVERNMENT
GLOBAL
GOVERNMENT
BUSINESS UNITS
Customer intimacy, tailored offerings, agility, reach, innovation
CAPABILITIES
OPERATIONS (COO)
Operationalising innovation
Delivering high reliability
and security
INVESTMENT
INNOVATION
DEVELOPMENT AND
ENGINEERING (CTO)
High-paced, high-quality innovation
Leveraging market/customer intimacy
Open to external collaboration
STRATEGIC REPORT
GOVERNANCE
OUR PEOPLE
Having the right people with the individual skills,
competencies and experience who can create
value and deliver our business objectives.
Example: Ensuring our values are visibly seen
to be applied across the business; focusing on
how we have responded to the issues raised in
the staff survey and how we will deliver further
changes in 2015. Ensuring that we are an agile,
devolved and well-trained organisation that can
respond powerfully to day-to-day challenges
and opportunities.
OUR TECHNOLOGY
Supporting on-going innovation to deliver
new products, services and satellite renewal.
Example: Our work to open up our architecture
to encourage development of new applications
as recently promoted at our first Inmarsat
Developers Conference. Our forward planning
for future products, building on what we have
now and how we can improve the experience
for our customers.
OUR VALUES
Embedding our corporate values so that all our
employees understand that so much of our
success as a business depends on ‘how’ they
interpret these values: being passionate, open,
enterprising and market-driven.
Example: The increased focus on how our
services can be used for aviation safety
combines several of these values: the passion
to bring forward ideas and suggest new ways
in which the aviation industry can improve
airline reporting, as well as the enterprising and
market-driven approach to transform these
ideas into products and services.
OUR SATELLITE NETWORKS
Having world renowned satellite network reliability.
Example: Each year we ensure our service meets
the maritime safety at sea standards set by the
IMO and aviation safety standards set by ICAO
so that customers know they can rely on us in
times of need to provide a life-saving service.
25
OUR PARTNERS
Having strong relationships with all our partners
– from suppliers to distributors – to strengthen
our service offering.
Example: By working closely with the different
parts of our ecosystem we identify opportunities
to work closer together or spot market
opportunities which have a mutually beneficial
outcome for us all.
If we focus on these different elements, we can
create greater value for ourselves and all our
stakeholders. These resources and relationships
are intrinsically linked and we recognise how
important it is not to focus on maximising one of
them at the expense of another. We will become
more successful as a business by optimising all
our resources and relationships.
OUR FINANCIAL RESOURCES
Having the financial resources available to us to
grow our business.
Example: Reviewing our banking/lending
arrangements to make best use of competitively
priced funding as we did for our last bond
financing in May 2014.
26
A ROBUST APPROACH
TO RISK MANAGEMENT
An overarching risk management policy is in place
which sets out the tolerance for risk within the Group
and how this is measured across identified macro
and business risks.
actions being taken to manage the risk to the
desired level. All the risk registers are reviewed by
senior management and provided quarterly to the
Board and to the Audit Committee.
As required by the policy, management operates
a risk management process to identify, evaluate
and report significant risks within the business and
to report to the Board on how those risks are being
managed. Risks are highlighted through a number
of different reviews and culminate in a risk register,
monitored by Risk Committees across the Group,
which identify the risk area, the probability of the
risk occurring, the impact if it does occur and the
The Group faces a number of risks and uncertainties
that may adversely affect our business, operations,
liquidity, financial position or future performance, not
all of which are wholly within our control. Although
many of the risks and uncertainties influencing our
performance are macroeconomic and likely to
affect the performance of businesses generally,
others are particular to our operations in mobile
satellite services.
Our principal risks and uncertainties are discussed
on the next few pages and are a summary of the
risks identified in the Preliminary Results Statement
distributed on 5 March 2015. This summary, however,
is not intended to be an exhaustive analysis of
all risks and uncertainties affecting our business.
Some risks and uncertainties may be unknown
to us and other risks and uncertainties, currently
regarded as immaterial, could turn out to be
material. All of them have the potential to impact
our business, operations, liquidity, financial position
or future performance adversely.
RISK MANAGEMENT PROCESS
INMARSAT PLC BOARD
AUDIT COMMITTEE
BUSINESS OPERATIONS
> Defines the risk governance framework,
risk culture and principles
> Sets overall risk strategy and policy
> Approves risk levels
> Responsible for an effective system
of internal controls
> Approves risk decisions that are beyond
delegated authorities
> Reviews the risk management framework
and the effectiveness of internal
controls, risk management systems
and major risk initiatives
> Reviews the internal audit programme
and reports
> Review the risk management framework
and the effectiveness of internal
controls, risk management systems and
major risk initiatives across the Group
RISK COMMITTEE
> Reviews the risk profile against risk appetite and makes recommendations
to management in relation to risk profile, strategy and key controls
> Reviews the suitability of risk methodologies, metrics and policies
> Assesses major risk-related projects
BUSINESS OPERATIONS
> Implement mitigation strategies
STRATEGIC REPORT
GOVERNANCE
27
OUR RISKS
SATELLITES AND OUR NETWORK
RISK
We face risks when we launch our satellites and while
they are operated in their orbital location. There are
only a few companies who provide launch services
and if they encounter problems, our launches may
fail or be delayed. Our network may not be able to
cope with the demand from users.
MITIGATION
In orbit failure of a satellite is mitigated by using
our resident quality assurance teams during the
manufacture and assembly of the satellites and
launch vehicles. The staff in our control centre
are highly trained professionals with significant
experience in operating satellites once in orbit.
We have launch and in-orbit insurance in place.
Our network is designed to accommodate surges
in traffic demand by flexibly deploying capacity
to those places in need.
CYBER SECURITY
RISK
Our networks may be vulnerable to security risks
from unauthorised access, computer viruses or
other security risks.
MITIGATION
We have implemented industry-standard security
measures, and have increased our investment in
counter cyber threat tools and staff.
CRITICAL PARTNERS
RISK
We rely in part for our revenues on third-party
distribution partners and service providers and they
might not sell our services effectively or competitively.
MITIGATION
We encourage strong relationships with all our
partners and provide them with excellent products
and services to sell in their markets. Our relationship is
important to this success and we encourage sharing
of information, developing ideas through 1:1 meetings
and through our regional and global conferences.
SPECTRUM
NEXT GENERATION SERVICES AND
SATELLITES
RISK
We rely on radio spectrum, which has historically
been allocated without charge, to provide our
services. We must agree how it is used in coordination
with other satellite operators. We may not be able
to coordinate usage in the future and/or may be
charged for the spectrum which could affect our
ability to provide services.
RISK
We have two significant programmes currently
underway: Global Xpress and the aviation passenger
connectivity S-band satellite programme. Both
programmes could be subject to delays or cost
overruns and when they are launched there is a
risk that the level of demand will not justify the
cost spent.
MITIGATION
We utilise innovation to ensure we regularly
improve the efficiency of our spectrum usage.
We also educate and inform regulators and
government as to the unique sociologyeconomic contribution of MSS.
MITIGATION
We have professional, experienced teams who focus
on large-scale programmes and develop close
relationships with the third parties we use to deliver
them. Any such programmes are subject to a
detailed business case being prepared before we
proceed and regular checks on progress against
the original business case.
REGULATION
RISK
We face increasing regulation in several areas.
Providing our satellite services in some countries
may incur additional costs or we may require
licenses to operate which are difficult to obtain.
MITIGATION
We work closely with the regulators, governments
and our local partners to ensure that our services
operate within the local requirements. Our focus is to
ensure we have the appropriate licenses to operate
to allow our partners to distribute our services.
COMPETITION
RISK
We face competition today from a number
of communications technologies and expect
competition to increase which may reduce demand
for our services because newer technologies are
used in preference to ours.
MITIGATION
We believe our current L-band products remain
competitive. We are introducing new products and
services to stimulate demand by extending use
by existing users and being of appeal to new users.
Our investments in Global Xpress and the S-band
programme will position us favourably against some
competition and we have put additional focus and
attention on how we innovate more quickly and
focus on services our customers want to use.
28
OUR RISKS CONTINUED
DEVELOPMENT OF
HYBRID NETWORKS
RISK
If hybrid networks start to be developed, we may face
increased competition for the right to use L-band
spectrum in certain countries which would make it
difficult for us to obtain or retain the spectrum we
need to operate our business. There is also a risk
that hybrid networks may interfere with the
transmission of our services.
MITIGATION
We have an experienced team who monitor network
interference. They will work with potential hybrid
network operators to understand their requirements
and how their service can operate alongside our
own without causing issues for our customers.
LIGHTSQUARED
COOPERATION AGREEMENT
RISK
If the LightSquared agreement continues after they
emerge from bankruptcy, we will ultimately give them
some of the L-band spectrum over North America
and our services will co-exist with their services in
adjacent frequencies. This could mean our services
are congested or interrupted which could affect our
service performance in North America.
MITIGATION
We have an experienced team who monitor
the activities of the LightSquared cooperation
agreement. They understand how both sets of
services would need to sit alongside each other
to ensure any interference is minimised or does
not exist.
REDUCTIONS IN SPENDING
BY GOVERNMENT CUSTOMERS
RISK
We have experienced significant reduction in US
Government spending over the last couple of years
and some reduction in other global government
spending. We have faced increased competition
as companies pursue what opportunities there are
often at low margins. If further government spending
controls are implemented, contracts may be
cancelled, de-scoped or delayed which could
affect our revenues.
MITIGATION
We have already cut costs within the US
Government business to reflect the downturn a
couple of years ago. There is much public discussion
about the reliance of governments on commercial
satellite operators. We believe the reliability of our
existing satellites and the new services we have
launched focused on government usage, plus the
introduction of our Global Xpress satellites will
offer attractive services for government users.
SANCTIONS
RISK
The current unstable geo-political situation in
Ukraine has created new risks for us and could affect
the launch of the third Inmarsat-5 satellite which
uses a Russian-built rocket as its launch vehicle
and is launched from a Russian operated site.
MITIGATION
We monitor closely the ongoing political situation
and believe that the restrictions currently in place
do not affect the launch of the third satellite. We
have applied for all licenses and engage with the
appropriate government departments to ensure
we are able to proceed to launch the satellite.
FINANCING AND FOREIGN
EXCHANGE RISK
RISK
Our ability to make payments on and refinance our
debt depends on our future operating performance
and ability to generate sufficient cash. If our business
does not perform well we may not be able to fund
our debt payments.
MITIGATION
We have long-range business plans, annual
budgets and regular forecasts of the Company’s
business which review cash flow generation and
debt repayment. Monitoring these measures on a
regular ongoing basis will enable us to plan for
debt repayment appropriately and responsibly.
TAXATION
RISK
As we operate in multiple jurisdictions, we may
have disputes concerning the amount of tax due.
MITIGATION
We maintain constructive engagement with the
local tax authorities and where appropriate we
engage advisors and legal counsel to obtain
opinions on tax legislation and principles. We also
provide for any potential tax exposures in line with
accounting standards.
MANAGEMENT AND EMPLOYEES
RISK
We may find our staff leave because our business
does not maintain an up-to-date focus on
technological advancement or that they feel they
are not fairly compensated. We may also have
difficulties in recruiting talented new staff.
MITIGATION
Our business has a new energy to focus on
technological innovation which creates an exciting
environment in which to work. We have also put
in place manager and leadership development
programmes and continue to benchmark
compensation to ensure our staff are remunerated
fairly reflecting the roles they perform.
STRATEGIC REPORT
GOVERNANCE
BUSINESS
IN ACTION
Inmarsat operates across four primary
business segments – Maritime, Enterprise,
Aviation and Government – providing highly
reliable, efficient and cost-effective satellite
connectivity services to public and private
sector organisations across all seven
continents. The following pages provide
greater information about each of
these sectors.
A glossary can be found on pages 134 and 135 of this report.
29
30
MARITIME
Our Maritime business remains Inmarsat’s largest
single market segment, representing approximately
50% of the Company’s annual MSS revenues.
2014 continued to see significant uptake of our
FleetBroadband service, as maritime users continued
the trend of migrating from Inmarsat’s legacy services
to its more advanced broadband connectivity.
The Maritime business also continued to enjoy the
fruits of a strong product and service pipeline, and
2014 saw a number of new, innovative services, which
helped both to expand the Company’s leadership
position in maritime communications and to open
up new revenue opportunities.
2014 commenced for Maritime with the completion
of our asset acquisition of Globe Wireless, the
Florida-based provider of value-added maritime
communications services to the shipping market.
The business had an installed customer base of
over 6,000 ships.
This acquisition kicked off a strong year for
Maritime, laying the groundwork for both enhancing
customer revenues from Inmarsat’s market-leading
FleetBroadband service and preparing the market
for the introduction of FleetXpress, which will
combine the resilience of L-band satcoms with the
significantly enhanced capacity afforded through
the Company’s new Global Xpress constellation.
The strategy of migrating Inmarsat Maritime
customers away from our legacy services continued
to yield strong results. While revenues from our
legacy Fleet service declined by almost 20%
over the year, this was off-set by the growth in
FleetBroadband revenues, which increased by almost
one quarter over the course of the year.
By the close of the year, we had seen a climb of
almost 13% in the number of active FleetBroadband
ships, which grew to over 40,000. In parallel with the
growth in FleetBroadband, the Maritime business also
enjoyed a strong rise in its VSAT installed base. This
trend was driven, primarily, by end-users taking
up our XpressLink service; itself a migration path to
FleetXpress, which will deliver a new generation of
high-speed broadband services via the new Global
Xpress constellation.
The expansion of our higher capacity services
is supporting a growing trend in the maritime
industry in which there is increasing reliance on
ship-to-shore data communications. This reflects
both the industry’s need to enhance crew welfare
services and the introduction of a host of new
operational technologies helping to drive cost
efficiency across the industry. 2014 also saw two key
innovations for Inmarsat’s Maritime business.
The first of these was the development and launch
of Fleet Media, an innovative new service, which
strengthened further our welfare and training offering.
The expansion of
Inmarsat’s higher
capacity services is
supporting a growing
trend in the maritime
industry in which there
is increasing reliance
on ship-to-shore data
communications.
Fleet Media, developed in conjunction with a leading
programme content provider, NT Digital Partners,
brings a first for satellite content offering to the
commercial maritime market. It uses the Inmarsat-4
and Inmarsat-5 satellite constellations and leverages
our global distribution channel to deliver the latest
Hollywood movies, as well as television programming,
sports and news content, to the world’s commercial
shipping fleet, while at sea, to the crew’s own
personal devices (tablets, smartphones, laptops).
In addition, it is expected that Fleet Media will serve
as a platform for the delivery of cutting edge crew
education, training and development.
Inmarsat Maritime also started to penetrate a new
market for its satcom services in 2014 with the
introduction of Fleet One.
With this tailored solution, Inmarsat started
addressing the growing demand for connectivity
amongst leisure yacht, fishing and other small boat
owners. Fleet One enables us, for the first time, to
support smaller vessels with services previously the
preserve of much larger vessels, at price levels
fit for this vertical.
The solid performance of the Maritime business
demonstrates the dual benefits our broadband
connectivity service offers in terms of operational
efficiency and crew welfare both of which are key
drivers in a world maritime market. The maritime
industry continues to be characterised by low
growth, with relatively high fuel prices, low cargo
rates and weak demand, combining to create
a challenging trading environment for many
maritime organisations.
Our Maritime business engaged the market on these
important trends with its inaugural ‘Smart Operations’
conference, the first in a series of events to
stimulate debate in the maritime industry about
the operational benefits of integrated thinking on
shore and ship communications.
During 2014, we initiated a step-change in thinking
on safety services. The recognised global leader in
maritime safety services, Inmarsat is building on its
35 years of heritage in maritime safety services with
a transformative approach that will bring the world’s
most reliable safety systems into the heart of the
‘smart ship’. The Company’s vision is to integrate
safety, environmental monitoring and regulatory
compliance into a single, easy to use, robust and
reliable solution.
STRATEGIC REPORT
GOVERNANCE
31
ENSURING DISTRESS CALLS
AT SEA ARE HEARD
Mariners in grave or imminent danger need to
know their call for help will be heard, no matter
where their ship is or how bad the conditions. The
Volvo Ocean Race provided dramatic evidence
of the power and reach of Inmarsat’s global
connectivity on 29 November 2014 when Team
Vestas Wind’s VO65 ran aground the Cargados
Carajos reef, some 220 miles NNE of Mauritius,
causing appalling damage.
Inmarsat is the satellite cornerstone of the Global
Maritime Distress and Safety System (GMDSS).
It is the only satcoms provider to offer 99.9%
availability of its satellite and ground network.
Having contacted Volvo Ocean Race Control
in Alicante to report the grounding and launch
the rescue operation, the boat began taking
on water and after eight hours the crew had
to abandon ship as flooding cut all electrical
supplies and meant that the on-board phones
no longer functioned.
Luckily for Team Vestas, their life raft was equipped
with Inmarsat’s IsatPhone 2 satellite phone, which
ensured that they could remain in contact with
Race Control while waiting for help to arrive.
“It’s been a lifesaver,” said Skipper Chris ‘Nico’
Nicholson. Team Vestas’ dramatic rescue
story was then shared with the world’s media
via Inmarsat’s land-based BGAN service,
once they reached the tiny Ile du Sud.
Scan the blue box using the Inmarsat
App to view video content about
Team Vestas Wind rescue.
32
EXTENDING COVERAGE
IN REMOTE LOCATIONS
IsatHub is the first step in the reinvention of the
BGAN product platform.
Approximately the size of a paperback book,
it offers extraordinary coverage extension
for smartphones and tablets at low cost. IsatHub
delivers the highest data rate of any equivalent
mobile satellite service.
IsatHub has attracted significant media
attention since its official launch in 2014 and
is opening up Inmarsat’s BGAN connectivity
services to a new generation of users.
Through the IsatHub service, users can surf
the internet, access their apps, text or talk
using their smart devices, even when they’re
thousands of kilometres from a terrestrial
fixed or mobile network.
Whether exploring for oil in the middle of a
desert; a journalist tweeting breaking news from
a remote island; or simply on holiday hundreds
of kilometres from the nearest cellular coverage,
IsatHub offers an assured 3G service for
smartphones or tablets in areas that terrestrial
networks cannot reach.
Scan the green box using the Inmarsat
App to view the IsatHub video.
STRATEGIC REPORT
GOVERNANCE
33
ENTERPRISE
Inmarsat’s Enterprise business top-and-tailed its
year with major transactions, beginning with the
completion of the sale of Inmarsat’s retail energy
business to RigNet, Inc. and concluding in December
with the agreement to sell our stake in SkyWave, our
leading downstream M2M partner, to ORBCOMM.
The sale of our retail energy assets to RigNet was
part of a wide-ranging strategic transaction between
the two companies, which also saw the appointment
of RigNet as a Value Added Reseller (VAR) for
Global Xpress and as a Distribution Partner
for Inmarsat’s L-band services focusing on the
energy sector.
This strategic approach was also reflected in
the transaction to sell our shareholding in SkyWave
to ORBCOMM. As part of the agreement, Inmarsat
further cemented its important strategic relationship
with ORBCOMM in the global M2M marketplace and
acquired the intellectual property for the IsatData
Pro (IDP) technology, as well as the SkyWave M2M
service platform. This will enable Inmarsat to support
a step-change in the pace of product and service
innovation in this important market segment.
Throughout the year, the performance of the
Enterprise business was characterised by significant
innovations and the introduction of new services to
both strengthen the Company’s overall proposition
and to open up new opportunities to provide
Inmarsat services to a new generation of users.
Across the year as a whole, underlying revenue
growth for our Enterprise business was just over
6%, excluding the impact of the sale to RigNet.
The increase was driven particularly by strong
growth in machine to machine (M2M), IsatPhone
– our handheld satphone - and Enterprise
FleetBroadband (FB) revenues, although this
was partially offset by lower BGAN revenues.
M2M saw the highest growth rate, at 30% for the
year, followed by IsatPhone with a 23% increase in
its installed based – taking the number of IsatPhone
terminals to 115,500. Enterprise FB, which had growth
of 22% in comparison to the previous year. BGAN
revenue declined by 9% year-on-year.
The growth in the M2M segment, which saw tens
of thousands of devices brought onto the Inmarsat
network, was further supported by the expansion
of Inmarsat’s M2M distribution channel with the
appointment of RacoWireless, a global Distribution
Partner for the award-winning IsatData Pro service.
M2M connectivity, or the ‘internet of things’,
allows devices to communicate with each other
and share information via the internet. Satellite
communications play an increasingly important role
in M2M development, enabling a host of applications
ranging from asset tracking and remote surveillance
to Smart Grids and environmental monitoring.
Among a range of major service innovations,
Inmarsat strengthened its position in the satellite
phone market with the introduction of IsatPhone 2,
the Company’s most advanced handheld satellite
phone. IsatPhone 2 offers dependable, high-quality
voice calls, text and email messaging outside cellular
and fixed network coverage. IsatPhone 2 joined
Inmarsat’s top-selling IsatPhone Pro as the latest
addition to the Company’s handheld satellite phone
portfolio, offering customers a choice of phone
depending on their requirements and budget.
A further important innovation in 2014 was the global
launch of IsatHub, which – like Maritime’s Fleet One
service – takes Inmarsat into a new market segment.
Throughout the year,
the performance of
the Enterprise business
was characterised by
significant innovations
and the introduction
of new services.
Designed to deliver global connectivity for
smartphones and tablets, IsatHub features the
highest data rate of any equivalent mobile satellite
service with standard IP data of up to 240/384kbps
(send/receive). Through the new service, both
commercial and private users can surf the internet,
access their apps, text or talk using their own smart
devices, even when they’re thousands of kilometres
from a terrestrial fixed or mobile network. IsatHub
was well received in the media and was heralded as
a significant innovation by consumer technology
commentators across the world.
34
AVIATION
Inmarsat’s aviation business enjoyed another
year of strong growth in 2014, recording a revenue
increase of over one-third for the full year. This
continued expansion was seen across both the
business aviation and commercial air transport
segments, for safety and cockpit communications,
as well as aircraft operational systems and
passenger connectivity.
The engines of growth for Inmarsat’s aviation
business were SwiftBroadband (SB) and Classic
Aero services, with SB growth in particular benefitting
from the impact of the ‘take-or-pay’ minimum
commitment contracts signed with several key
distribution partners mid-2014.
Active SB terminals grew by some 33%, reaching
approximately 5,400 by the end of the full year.
Classic Aero active terminals grew by just over 9%.
Inmarsat’s biggest aviation news for 2014 was the
announcement in June that it was committed to the
development and building of a highly innovative,
hybrid satellite-terrestrial network across the
European Union.
The purpose of the new network is to provide
high-capacity, high-throughput passenger
connectivity services to the short-haul European
aviation industry. The initiative has generated
significant interest among commercial airlines and
Inmarsat’s aim is for the European Aviation Network
to enter commercial service at the end of 2016.
2014 proved to be a dramatic year for the
commercial aviation industry with the tragic loss
of a number of passenger jets, including the
disappearance of Malaysian Airlines Flight MH370.
These events highlighted the need for more
robust flight tracking and surveillance systems,
and we are is strongly supporting industry and
government initiatives to introduce more reliable
and effective satellite-based solutions. To this end,
we have further strengthened our capabilities in this
area with a number of significant appointments
drawn from across the aviation industry.
The aviation business also presented its plans
for a free increased position reporting and tracking
service and its concept for a ‘black box in the cloud’
service to ICAO in May, both of which can be
achieved through Inmarsat’s existing
satellite constellations.
Inmarsat’s biggest
aviation news for 2014
was the announcement
in June that it was
committed to the
development and
building of a highly
innovative, hybrid
satellite-terrestrial
network across the
European Union.
In September, we announced that Hawaiian Airlines,
the largest and longest serving airline for Hawaii,
will become the first commercial airline to install
SwiftBroadband for flight deck applications, including
safety services on its Boeing 767-300s. Hawaiian
Airlines will use Inmarsat’s ‘SB Safety’ for ACARS
data messages, live Electronic Flight Bag updates
and Airline Operational Communication (AOC)
voice and data. Inmarsat and the Federal Aviation
Authority will collect data on the performance of
the FANS1/A service on Hawaiian Airlines, which will
contribute to the achievement of approvals for
FANS1/A services over the ‘SB Safety’ service
which are expected by early 2016.
2014 was also a key year for our aviation business
in relation to the new Global Xpress constellation.
Inmarsat Aviation has already established GX
Aviation as a leading global passenger connectivity
service, even before the full global network becomes
operational. During the course of 2014, several
airlines have committed to this new technology and
its revolutionary passenger service offering. It was
announced in May 2014, that an Inmarsat partner,
Honeywell, was working with Air China to trial GX
avionics on an Airbus A330.
STRATEGIC REPORT
GOVERNANCE
35
GIVING PASSENGERS
CONNECTIVITY IN THE AIR
Inmarsat is investing up to $450m in a
revolutionary hybrid satellite/terrestrial network
to deliver the world’s fastest mobile broadband
service to the skies above Europe, ensuring
passengers can enjoy the same connectivity
in the air as they do on the ground.
Deploying an air-to-ground network across
Europe will be complementary to our global
satellite services operating with high-throughput
broadband over the busy regional air traffic routes.
Once the service is launched, passengers will
simply log on with their smartphone, tablet or
other Internet device and surf the web as if they
were at home. Whether it’s to stay in touch with
friends and family, catch up on the latest news,
complete a work assignment or make future
travel arrangements, passengers will be able to
access a true broadband experience in the air.
These high-speed broadband services could
be available by the end of 2016.
Scan the pink box using the Inmarsat
App to view the European Aviation
Network video.
36
SECURE AND RELIABLE
ACCESS AND CONNECTIVITY
The Inmarsat-5 satellites operate with a
combination of fixed narrow spot beams that
enable us to deliver higher speeds through
more compact terminals, plus steerable beams
so additional capacity can be directed in
real-time to where it’s needed.
Feedback from these trials has shown that GX
doesn’t only meet but exceeds the expectations
of these users.
Operating in the high-performance Ka-band,
while integrating seamlessly with our proven
L-band network, Global Xpress (GX) allows
customers across aviation, maritime, enterprise
and government sectors to have reliable
and assured access to high-throughput
communications.
Government users have been at the forefront of
the adoption of GX services and extensive trials
have been conducted using the first satellite –
Inmarsat-5 F1 – in orbit above Europe, the
Middle East, Africa and Asia. The satellite already
carries early revenue traffic from aviation
and land-based government users in both
commercial and military bands.
Scan this grey box using
the Inmarsat App to view
the Global Xpress video.
STRATEGIC REPORT
GOVERNANCE
37
GOVERNMENT
When Inmarsat announced the launch of regional
Global Xpress services mid 2014, the first paying
customers came from the Government sector, and
since then, both Inmarsat US Government and
Global Government Business Units have been at the
forefront of trials and pilots for the Company’s most
advanced, high-speed broadband services.
Although market conditions in the US Government
sector remain challenging, the opportunities
presented by Global Xpress, including its specific
MilSatCom capabilities, are generating significant
interest from governments across the world. This
interest supports a growing trend for governments to
supplement their own satcom resources with services
from trusted commercial providers, such as Inmarsat.
While the longer-term prospects for the government
business remains positive, 2014 was a challenging
year for commercial satcom providers following the
withdrawal of US and coalition troops in recent years
from Iraq and Afghanistan and continued pressure
on government budgets.
These issues were particularly difficult for Ku-Band
FSS providers in 2014, and Inmarsat’s Ku-FSS retail
business in the US was not immune from this which
resulted in a decline in overall government revenues.
Certain US contracts were not renewed, in particular
for IP managed solutions. Other contracts were
reduced in scale, with increased competitive intensity
putting downward pressure on pricing and margins.
satellite is just one component of the overall solution
being supplied; managed services and areas where
the flexibility of Inmarsat’s commercial bandwidth
enables us to augment governments’ own
communications capabilities most cost-effectively.
2014 saw new contract wins in almost every
continent, and encouraging revenue growth
in new product areas.
Focused on long-term growth, Inmarsat’s
Government business continued a strong programme
of service enhancements in 2014, focused around
its existing L-band constellations as well as the
introduction of early Ka-band GX services.
Inmarsat’s L-TAC service continued to perform well
in 2014 with significant deployment by US forces
and governments across the world. Designed with
soldiers in mind, the L-TAC service, combined with
the Spectra SlingShotTM, enables existing secure
government radios to extend their range by
accessing Inmarsat’s satellites using a simple
additional antenna unit.
A further important innovation was the development
of L-TAC for civilian government users. This new
service significantly extends the range and
capabilities of VHF radios used by the emergency
services and enables full interoperability between
civilian and defence forces radios – crucial during
major incidents or civil emergencies.
As the US Government shifted from large-scale
deployed operations to smaller, more mobile
operations, Inmarsat’s wholesale MSS Government
revenues were seen to have greater robustness.
MSS wholesale revenues were broadly steady by
the end of 2014 following a decline in 2013.
2014 also saw the broader adoption of Inmarsat’s
services in support of first responders. In addition
to the reactive deployment of services including
BGAN and IsatPhone, to support rescue and
recovery missions following natural and man-made
disasters, the year also saw a growth in proactive
deployment of Inmarsat technology.
Revenues from our Global Government business
increased as the Business Unit continued its
expansion plans, entering 11 new territories during
the course of the year. By expanding into attractive
growth markets and increasing diversity into
non-defence verticals, the Government business is
progressively reducing the impact of operational
tempo in any one nation. The Global Government
Business Unit now has teams operating across
30 countries, and we are pleased with the
progress being made.
In March 2014, the Indonesian National Board
for Disaster Management selected Inmarsat as the
basis of a pre-deployed emergency communications
infrastructure, which will support the country’s
disaster response in the event of a natural
catastrophe. Twenty regions in Indonesia are
pre-deploying Inmarsat capable satcom equipment
in addition to the pre-emptive deployment of two
Unmanned Aerial Vehicles (UAV) with advanced
cameras on-board to provide immediate
surveillance capabilities in the event of a disaster.
There were encouraging new areas of growth in
government demand for commercial satellite
services in 2014. These include specialised
programmes; integrated programmes in which
38
2014 FINANCIAL REVIEW
STRONG PERFORMANCE
IN 2014
OVERVIEW
TONY BATES
CHIEF FINANCIAL
OFFICER
CHANGES TO REPORTING SEGMENTS
Inmarsat plc revised its reporting segments during
2014 to reflect the way the business is now managed
by the Chief Executive Officer. The revised reporting
segments are ‘Maritime’, ‘Government’, ‘Enterprise’,
‘Aviation’ and ‘Central Services’. Central Services
includes all income and costs that are not directly
attributable to the other reporting segments,
including all corporate administrative costs.
The comparative results have been restated using
the new reporting segments. We will no longer present
results under the previous reporting segments.
However, we will continue to report wholesale Mobile
Satellite Service (MSS) revenue for the Group.
GROUP RESULTS
These results give the consolidated operating results
and financial condition of Inmarsat plc for the year
ended 31 December 2014.
GROUP RESULTS
(US$ in millions)
Revenues
Employee benefit costs
Network and satellite operations costs
Other operating costs
Own work capitalised
Total operating costs
EBITDA
EBITDA excluding LightSquared
Depreciation and amortisation
Loss on disposal of assets
Acquisition-related adjustments
Impairment losses
Share of profit of associates
Operating profit
Finance income
Finance expense
Net finance expense
Profit before income tax
Income tax expense
Profit for the year
2014
1,285.9
(237.3)
(205.7)
(174.1)
32.2
(584.9)
701.0
625.8
(291.8)
(1.2)
–
(1.3)
2.6
409.3
8.1
(75.1)
(67.0)
342.3
(1.2)
341.1
2013
1,261.9
(244.8)
(235.6)
(162.9)
30.2
(613.1)
648.8
639.8
(232.0)
(0.1)
4.6
(185.2)
2.3
238.4
4.9
(54.2)
(49.3)
189.1
(86.5)
102.6
Increase/
(decrease)
1.9%
(3.1%)
(12.7%)
6.9%
6.6%
(4.6%)
8.0%
(2.2%)
25.8%
–
(100.0%)
(99.3%)
13.0%
71.7%
65.3%
38.6%
35.9%
81.0%
(98.6%)
232.5%
STRATEGIC REPORT
GOVERNANCE
39
Cooperation Agreement was not received on
time. This payment was subsequently received on
25 February 2015. However, this revenue was not
recognised in 2014 but will be recognised in 2015.
REVENUES – BY REPORTING SEGMENT
2014
(US$ in millions)
Revenue
MSS and other
LightSquared
Total revenue
Maritime
Government
Enterprise
Aviation
Central
Services
Total
595.6
–
595.6
319.9
–
319.9
166.7
–
166.7
101.1
–
101.1
27.2
75.4
102.6
1,210.5
75.4
1,285.9
2013
(US$ in millions)
Revenue
MSS and other
LightSquared
Total revenue
Maritime
Government
Enterprise
Aviation
Central
Services
Total
524.8
–
524.8
408.3
–
408.3
221.6
–
221.6
73.4
–
73.4
21.5
12.3
33.8
1,249.6
12.3
1,261.9
During the year ended 31 December 2014, total Group
revenue increased by $24.0m (+1.9%) to $1,285.9m
(2013: $1,261.9m). This was driven by increased
revenue in respect of the LightSquared Cooperation
Agreement (+$63.1m) and underlying revenue growth
in Maritime, Enterprise, Aviation and other (+$57.7m
combined), partially off-set by a further decline in our
Government business revenue (-$88.4m) and the net
impact of acquisitions and disposals (-$8.4m).
Total Group revenue in the year included global
wholesale MSS revenue of $791.4m, 3.8% higher
than in 2013 ($762.4m), with higher MSS revenue
in Maritime and Aviation more than offsetting the
decline in our Government MSS revenue.
Operating costs in the year decreased by $28.2m
compared with 2013. Employee benefit costs
decreased by $7.5m (-3.1%) to $237.3m, and network
and satellite operations costs reduced by $29.9m
(-12.7%) to $205.7m. These reductions were partly
due to the sale of our retail energy-related assets by
Enterprise, as well as a reduction in our Government
business workforce in the US in late 2013, partially
offset by increased costs in Maritime as a result of
the acquisition of Globe Wireless.
EBITDA in the full year increased by $52.2m (+8.0%)
to $701.0m (2013: $648.8m). The Group’s EBITDA
margin increased to 54.5%, from 51.4% in 2013,
mainly reflecting the higher LightSquared revenue
received and the disposal of low margin retail
energy-related assets to RigNet.
Depreciation and amortisation increased by $59.8m
to $291.8m (2013: $232.0m) reflecting the entry
into service of Alphasat in November 2013 and of
I-5 F1 in July 2014. There was no material impairment
charge in the year (2013: $185.2m) and the Group
operating profit increased by $170.9m to $409.3m
(2013: $238.4m).
The net finance charge in the year increased by
$17.7m to $67.0m (2013: $49.3m), reflecting a
number of one-off factors relating to the refinancing
of the Group’s Senior Notes in the first half, and to the
adjustment to the expected maturity date on the
Convertible Bonds. Although there was an increase
in net debt during the year the underlying interest
charge was broadly flat, due to the lower average
borrowing cost. Profit before tax in the year was
$342.3m (2013: $189.1m)
The tax charge for the year was $1.2m, a reduction
of $85.3m (2013: $86.5m). This decrease was due
primarily to the release of the $53.1m provision made
in 2013 for a potential tax liability which arose in
respect of the I-4 satellites. The HMRC review into
this issue has now been concluded with no adjustment
to our originally filed position. Profit after tax was
$341.1m, compared to $102.6m in 2013, and basic
earnings per share was 76 cents (2013: 23 cents).
LightSquared Cooperation Agreement
In December 2007, we entered into a Cooperation
Agreement with LightSquared designed to enable
ancillary terrestrial component (ATC) services in
North America, while protecting the continued
deployment and growth of our own MSS business.
In May 2012, LightSquared filed for a reorganisation
under Chapter 11 of the US Bankruptcy Code and
is yet to complete a reorganisation process, so
payments from LightSquared therefore continue
to be subject to significant uncertainty.
On 31 March 2014, LightSquared elected to restart
Phase 2 of the Cooperation Agreement. As a result,
we received three payments totalling $31.6m due
under the terms of the Cooperation Agreement.
In addition, following a review at the end of the first
half, we recognised $43.8m of previously deferred
income in relation to the Cooperation Agreement.
Total LightSquared revenue in the full year was
therefore $75.4m, compared to $12.3m in 2013.
At 31 December 2014, deferred income remaining in
relation to the Cooperation Agreement of $208.8m
was recorded on the balance sheet. Although the
cash has been received, the timing of the recognition
of this deferred income, together with any related
future costs and taxes, remains uncertain.
A payment of $17.5m due from LightSquared
on 31 December 2014 under the terms of the
Acquisitions and Disposals
In January we completed the $45.2m acquisition
of Globe Wireless, a Florida-based provider of
value-added maritime communications services
to the shipping market.
Maritime’s revenues in the year ended
31 December 2014 included $55.1m due to the
acquisition of Globe Wireless. The impact is shown
net of intercompany eliminations and adjustments
as Globe Wireless was an established distribution
partner of Inmarsat; therefore the stand-alone
results of Globe Wireless do not represent a
corresponding increase in Group results.
This acquisition increased our installed customer
base by over 6,000 ships and significantly
expanded our installation capabilities, to enable
a faster roll-out of both XpressLink and GX to
the maritime market, direct to end-users as well
as through well-established channel partnerships.
We also acquired a portfolio of industry-leading
value-added services, moving us beyond pure
connectivity and into solutions and managed
services for maritime end-users.
In February we completed the sale of our retail
energy operations to RigNet, a leading global
provider of managed remote communications
solutions to the oil and gas industry for a total
consideration of $25m.
The sale was part of a wider strategic transaction
between the two companies, which also included
the appointment of RigNet as a GX Value Added
Reseller and as our L-band Distribution Partner for
the energy sector. Under the transaction, RigNet
acquired substantially all of Inmarsat’s retail energy
broadband assets, including microwave and WiMAX
networks in the US, VSAT interests in the UK, US
and Canada, and a telecommunications systems
integration business operating globally, as well as the
retail L-band energy business. This disposal reduced
Enterprise revenue during the year by $63.5m.
In December we announced the sale of our 19%
holding in SkyWave Mobile Communications to
ORBCOMM Inc. for total proceeds of $32.9m.
ORBCOMM in turn entered into binding agreements
to acquire 100% of SkyWave. The transaction
closed in January 2015. The share sale was one
part of a suite of agreements with ORBCOMM, a
leading global provider of M2M solutions, covering
the joint ownership and future development and
commercialisation of the IsatData Pro (IDP)
technology. This enables Inmarsat to enhance
its M2M offering, further supporting the adoption
of IDP in multiple new markets. As part of the
agreements with ORBCOMM, we acquired
SkyWave’s satellite network assets, hosted at three
Inmarsat Satellite Access Stations, for $7.5m.
40
2014 FINANCIAL REVIEW CONTINUED
BUSINESS UNIT RESULTS
MARITIME BUSINESS UNIT
Maritime revenue in the year increased by
$70.8m (+13.5%) to $595.6m (2013: $524.8m).
This increase includes $55.1m due to the
acquisition of Globe Wireless.
Underlying revenue growth of $15.8m (+3.2%)
reflected strong growth in our FleetBroadband
(FB) revenues (+24%), and VSAT revenues (+26%),
partially offset by a decline in the revenues from
our legacy services, particularly the Fleet service
(-19%). FB and VSAT together generated around
two-thirds of Maritime’s revenues in the year.
At the end of the year there were 40,469 active
Maritime FB ships connected, almost 13% higher
than the base of 35,888 at the end of 2013. The
strategic upselling of FB customers onto higher
rate plans continued, and average wholesale
ARPU per month increased by around 4%
during the year.
The installed VSAT base at the end of the year was
2,019 ships, mainly comprising XpressLink (XL)
customers, 23% higher than the total VSAT base
of 1,636 ships at the same time in 2013. The
installation run-rate run at the end of the year
was around 40 new ships per month. Average
VSAT wholesale ARPU in the year was broadly flat.
The decline in legacy services was driven by
price increases at the start of the year, which
successfully accelerated customer migration onto
our FB services. FB generates higher ARPU than
Fleet and offers end users significantly better service
and value, particularly if their data use is growing.
Operating costs for the year increased by $36.9m
(+34.1%) compared to 2013, due primarily to the
additional headcount and third-party network
services costs incurred as a result of the
acquisition of Globe Wireless.
Maritime EBITDA increased by $33.9m (+8.1%)
compared to the prior year, reflecting the higher
gross margin generated by FB revenue, as well the
acquisition of Globe Wireless. However, the EBITDA
margin decreased to 75.6% (2013: 79.4%) due to
Globe Wireless’s lower margins. The 39.6% increase
in depreciation and amortisation is also attributable
to the acquisition of Globe Wireless.
Total revenue
Operating costs
EBITDA
EBITDA margin %
Operating profit
Enterprise underlying revenue for the year, excluding
the impact of the sale of our retail energy related
assets to RigNet in January, grew by $8.5m (+6.2%).
Due to the impact of these disposals headline
revenue fell by $54.9m (-24.8%) to $166.7m
(2013: $221.6m).
The increase in underlying revenue was driven by
strong growth in machine to machine (M2M), FB
and IsatPhone revenues, partially offset by lower
BGAN revenues. M2M revenues grew by 30%, and
Enterprise FB was 22% higher than in the previous
year. The installed IsatPhone base grew by 23% to
115,500 terminals, from 94,000 at the start of
the year.
IsatPhone revenue grew strongly with growth
in both post-pay and pre-pay. Revenues benefitted
from price changes on both pre- and post-pay
standard plans, and migration of customers
onto higher value packages.
Operating costs decreased by $41.4m (-39.1%)
compared to 2013, due to lower headcount and
network services costs as a result of the disposal
of our retail energy-related assets.
Enterprise EBITDA decreased by $13.5m (-11.7%)
to $102.1m (2013: $115.6) primarily due to the
disposal of our retail energy-related assets.
However, the sale of these lower margin assets
resulted in the Enterprise EBITDA margin
increasing to 61.2%, from 52.2% in 2013.
The fall in depreciation and amortisation is
also attributable to the disposals of the
retail energy-related assets.
ENTERPRISE BUSINESS UNIT RESULTS
2014
2013
595.6
(145.2)
450.4
75.6%
(35.6)
414.8
524.8
(108.3)
416.5
79.4%
(25.5)
391.0
Increase/
(decrease)
13.5%
34.1%
8.1%
39.6%
6.1%
(US$ in millions)
Total revenue
Operating costs
EBITDA
EBITDA margin %
Operating profit
2014
166.7
(64.6)
102.1
61.2%
(0.2)
101.9
2013
221.6
(106.0)
115.6
52.2%
(3.6)
112.0
SPLIT OF GROUP REVENUE
(US$m)
(US$m)
595.6
The M2M business continued to grow strongly,
and at the end of the year our total installed base
across all four M2M product lines was over 292,000
terminals. Our high ARPU BGAN M2M service grew
particularly strongly, with the installed base over
5,000 units at the end of the year, more than
80% which are in the Resources sector.
ENTERPRISE BUSINESS UNIT
MARITIME BUSINESS UNIT RESULTS
(US$ in millions)
BGAN revenue was down by 9% year-on-year.
The decline slowed in the second half, as new high
ARPU BGAN services such as High Data Rate (HDR)
and Link, started to gain traction in the market.
595.6
166.7
166.7
Increase/
(decrease)
(24.8%)
(39.1%)
(11.7%)
(94.4%)
(9.0%)
STRATEGIC REPORT
GOVERNANCE
AVIATION BUSINESS UNIT
Aviation revenue for the year grew by $27.7m
(+37.7%) to $101.1m (2013: $73.4m). The growth
was driven by strong sales of our SwiftBroadband
(SB) and Classic Aero services, with SB growth
in particular benefitting from the impact of the
‘take-or-pay’ contracts signed with several key
distribution partners in mid-year. These contracts
applied pricing discounts retrospectively to the
start of the year, in return for minimum revenue
commitments in the full year 2014 and in 2015, and
they succeeded in generating substantial additional
revenue in the fourth quarter, as the distribution
partners concerned fulfilled their commitments.
41
Aviation EBITDA increased by $20.0m (+29.8%)
to $87.2m (2013: $67.2m). However, the EBITDA
margin decreased to 86.3% (2013: 91.6%) as a
result of the increased headcount and associated
business development costs.
GOVERNMENT BUSINESS UNIT
Government revenue in the year decreased by
$88.4m (-21.7%) to $319.9m (2013: $408.3m),
due to further decline in Government revenues
in the US. Government revenues outside the US
increased by almost 1% in the year.
Growth was driven by higher sales of both our
SB and Classic Aero services. SB active SIMS
grew by almost 33% to 5,450 at the end of the
year, the majority of these installed in the Business
and General Aviation segment. Classic Aero active
SIMS grew by just over 9% to 7,130 at the
year-end. Aviation ARPU grew by nearly 23%
to just over $1,000 per month.
Government revenue in the US continued to
decline due to the combined impact of continued
spending controls and reduced operational
requirements following the withdrawal from
Afghanistan. Certain contracts were not renewed,
in particular for IP managed solutions, and other
contracts were reduced in scale, with increased
competitive intensity putting downward pressure
on pricing. However, the rate of decline slowed
significantly during the fourth quarter.
Operating costs increased by $7.7m to $13.9m
(2013: $6.2m) due to higher employee-related
costs and business development costs, as Aviation
increased headcount significantly and deployed
additional resources to pursue major growth
opportunities, in particular for cabin connectivity
in the commercial aviation market.
Among its traditional customers outside the
US, Government saw similar revenue pressure
resulting from spending controls and reduced
operational requirements, including the withdrawals
from Afghanistan. However, this was offset by
increased revenues generated from new territories,
with new contract wins in Latin America and Asia
AVIATION BUSINESS UNIT RESULTS
(US$ in millions)
Total revenue
Operating costs
EBITDA
EBITDA margin %
Operating profit
(US$m)
101.1
2014
101.1
(13.9)
87.2
86.3%
(2.1)
85.1
as well as some smaller European countries,
and encouraging revenue growth in new product
areas such as Assured Access and L-TAC.
Operating costs in the year fell by $36.9m
(-26.3%) to $103.5m (2013: $140.4m).
Government’s operating costs in US Government
declined substantially, due to the impact of a
reduction in the workforce implemented in the
business during 2013, as well as lower revenues.
This was offset by an increase in operating costs
outside the US, as the business continued to invest
in expansion into a wide range of new markets.
Total Government EBITDA in the year fell by
$51.5m (-19.2%) to $216.4m (2013: $267.9m).
However, the EBITDA margin improved to
67.6% (2013: 65.6%), as a result both of the cost
reductions in the US Government business as well
as the improved revenue mix across the whole
Government business.
GOVERNMENT BUSINESS UNIT RESULTS
2013
73.4
(6.2)
67.2
91.6%
(2.1)
65.1
101.1
Increase/
(decrease)
37.7%
124.2%
29.8%
0.0%
30.7%
(US$ in millions)
Total revenue
Operating costs
EBITDA
EBITDA margin %
Operating profit
2014
2013
319.9
(103.5)
216.4
67.6%
(9.3)
207.1
408.3
(140.4)
267.9
65.6%
(10.6)
257.3
(US$m)
319.9
319.9
Increase/
(decrease)
(21.7%)
(26.3%)
(19.2%)
(12.3%)
(19.5%)
42
2014 FINANCIAL REVIEW CONTINUED
CENTRAL SERVICES
BUSINESS UNIT RESULTS
(US$ in millions)
2014
Increase/
2013 (decrease)
Revenue
LightSquared
75.4
12.3 513.0%
Other
27.2
21.5 26.5%
33.8 203.6%
Total revenue 102.6
Operating
costs
(257.7) (252.2) 2.2%
EBITDA
(155.1) (218.4) 29.0%
Depreciation
and
amortisation (244.6) (190.2) 28.6%
Impairment
losses
(1.3) (185.2) (99.3%)
Other
1.4
6.8 (79.4%)
Operating
profit
(399.6) (587.0) 31.9%
Central Services revenues and EBITDA for the year
increased by $68.8m, and $63.3m respectively.
The increase was due primarily to $75.4m of revenue
recognised from LightSquared including $31.6m of
cash payments as a result of LightSquared’s election
to restart Phase 2 of the Cooperation Agreement.
The level of activity was intense throughout the
year across both the Operations and Development
and Engineering organisations. In Operations, the
network integration of Alphasat and the build-up
to the start of GX commercial services on I-5 F1
following its successful launch in late 2013,
were managed successfully. Inmarsat-2 F2 was
decommissioned in December, more than
23 years after launch.
Service availability levels remained high across all of
our networks, and over the 2014/15 New Year period
we carried our highest volume of BGAN traffic to
date, with more than one million minutes switched,
with a peak of 1,575 simultaneous calls.
In Development and Engineering, management of
the highly intensive GX project brought I-5 F2 to
successful launch on 1 February 2015, and I-5 F3
is currently on schedule for launch in the second
quarter of 2015. The construction of I-5 F4 and of
our S-band satellite for European aviation both
remain on schedule for completion in 2016.
Despite the high levels of activity experienced across
all of the Central Services functions, Operating costs
in the full year were largely flat at $257.7m (2013:
$252.2m), with employee salary cost increases
largely offset by foreign exchange gains and lower
network operations costs. These included the impact
of a major site rationalisation project, which reduced
the number of ground stations at which we operate.
Depreciation and amortisation increased by
$54.4m to $244.6m (2013: $190.2m) primarily
resulting from our Alphasat and I-5 F1 satellites
entering commercial service in November 2013
and July 2014 respectively, and therefore starting
to be depreciated from these dates. Impairment
charges in the year were only $1.3m compared to
the $185.2m charged in 2013.
OPERATING PROFIT
As a result of the factors discussed above, operating
profit for the year was $409.3m, an increase of
$170.9m (71.7%), compared with 2013.
RECONCILIATION OF OPERATING
PROFIT TO PROFIT AFTER TAX
Year ended 31 December
(US$ in millions)
Operating
profit
Net finance
expense
Income tax
expense
Profit after
tax
2014
409.3
(67.0)
(1.2)
341.1
Increase/
2013 (decrease)
238.4
71.7%
(49.3) 35.9%
(86.5) (98.6%)
102.6 232.5%
NET FINANCE EXPENSE
The net finance charge in the year increased by
$17.7m to $67.0m (2013: $49.3m), reflecting a
number of one-off factors including the redemption
premium and other costs payable on the refinancing
of the Group’s Senior Notes in the first half ($35.3m
in total) and the recognition of a non-recurring
credit on the Convertible Bonds (see below). In
addition, there was a reduction of $37.2m in the
amount of interest capitalised as a result of our
Alphasat satellite entering commercial service in
November 2013, and a $14.3m reversal of capitalised
interest as a consequence of the non-recurring
credit in respect of the Convertible Bonds.
CONVERTIBLE BOND INTEREST
The final date for holders of our 1.75% Convertible
Bonds to exercise their option to convert was
16 November 2014, when bonds with an accreted
principal value of $0.9m were redeemed. The
maturity date of the remaining bonds has been
amended to their due date of 16 November 2017
and, as a result, the accreted carrying value of the
outstanding borrowings was reduced and a credit
to interest expense of $48.5m was recognised.
INCOME TAX EXPENSE
The tax charge for 2014 was $1.2m, a decrease
of $85.3m compared with 2013. Profit before tax
increased from $189.1m to $342.3m but the tax
impact of increasing profits was more than offset by
the release in 2014 of a $53.1m provision for potential
tax liabilities that had been recognised in 2013. This
provision was released in 2014 as the HMRC review
into this matter has now been concluded.
The effective tax rate for 2014 was 0.4% compared
to 45.7% for 2013. Excluding the impact of the
$185.2m of impairment losses on profit before tax
in 2013, the revaluation of UK deferred tax balances
following the reduction of the UK main rate of
corporation tax, the impact of current year non-UK
losses and other temporary differences for which the
benefit was not previously recognised, and the impact
of the provision for potential tax liabilities described
above, the effective tax rates would have been
20.7% for 2014 and 22.2% for 2013. The remaining
difference arises primarily from the reduction in the
UK main rate of corporation tax from 23% to 21%.
While the reduction did not become effective until
1 April 2014, this has the effect of lowering the average
UK statutory rate applicable to current year taxable
profits to 21.5% (2013: 23.25%).
PROFIT AFTER TAX
Profit after tax for the year ended 31 December 2014
was $341.1m (2013: $102.6m).
EARNINGS PER SHARE
Basic and diluted earnings per share for profit
attributable to the equity holders of the Company
were 76 cents and 69 cents, respectively (2013: 23
cents and 23 cents, respectively). Basic and diluted
earnings per share adjusted to exclude the aftertax effect of the LightSquared contribution and
impairment losses, and the effects of a provision for
potential tax liabilities which had been recognised
in 2013 and released in 2014, were 51 cents and
45 cents, respectively (2013: 69 cents and
68 cents, respectively).
DIVIDENDS
The Inmarsat plc Board of Directors intends to
recommend a final dividend of 30.26 cents per
share in respect of the year ended 31 December
2014 (2013: 28.82 cents), to be paid on 29 May
2015 to ordinary shareholders on the register of
members at the close of business on 15 May 2015.
Shareholders will be asked to approve the final
dividend payment at the Annual General Meeting
to be held on 6 May 2015. Dividend payments will
be made in Pounds Sterling based on the exchange
rate prevailing in the London market four business
days prior to payment.
The 2014 final dividend is not recorded as a liability
in the financial statements at 31 December 2014. The
total dividends paid and proposed in respect of the
year ended 31 December 2014 equals 48.94 cents
per ordinary share, an increase of 5% over 2013.
GROUP CASH FLOW
During the year, free cash flow was $150.1m
(2013: -$84.4m). The increase is primarily due
to a reduction in capital expenditure and higher
EBITDA in 2014. The movement in working capital
of $64.8m is largely due to the release of $43.8m
of LightSquared deferred revenue to the income
statement during the year and a prepayment of
future SpaceX launch fees.
Capital expenditure decreased by $175.2m
compared with 2013, primarily due to the timing
of expenditure in relation to the Global Xpress
programme and the completion of substantially
all of our Alphasat capital expenditure by the
end of 2013.
STRATEGIC REPORT
GOVERNANCE
43
GROUP CASH FLOW
(US$ in millions)
EBITDA
Non-cash items
Change in net working capital
Cash generated from operations
Capital expenditure
Net cash interest paid
Cash tax paid
Free cash flow
Acquisition of subsidiaries and other investments
Proceeds on disposal of assets
Dividends paid to shareholders
Other movement including foreign exchange
Net cash flow
Opening net borrowings
Net cash flow
Other(1)
Closing net borrowings
Year ended
31 December
2014
2013
701.0
17.2
(64.8)
653.4
(405.7)
(88.1)
(9.5)
150.1
(46.2)
27.5
(212.9)
1.0
(80.5)
1,812.8
80.5
7.4
1,900.7
648.8
15.9
(49.9)
614.8
(580.9)
(98.0)
(20.3)
(84.4)
(3.3)
0.5
(200.5)
(0.5)
(288.2)
1,489.3
288.2
35.3
1,812.8
(1) Other includes a non-recurring credit to re-base the convertible bonds and the impact of deferred financing costs.
GROUP LIQUIDITY
AND CAPITAL RESOURCES
At 31 December 2014, the Group had cash and cash
equivalents of $204.4m and available but undrawn
borrowing facilities of $990.0m under our Senior
Credit Facility and Ex-Im Bank Facility.
The Group maintains tax provisions in respect of
ongoing enquiries with tax authorities. If all such
enquiries were settled as currently provided for, we
estimate the Group would incur a cash tax outflow
of approximately $80m. Any cash outflow would be
unlikely to be incurred until late 2016. The enquiries
remain ongoing at this time.
GROUP BALANCE SHEET
The increase in the Group’s non-current assets of
$154.7m is largely due to our ongoing investment in
the Global Xpress infrastructure and the development
of our new S-band programme that will deliver
high-speed broadband services to aviation passengers
across the European Union by the end of 2016. Over
$330m was invested in these two programmes during
2014. This was offset by depreciation of $165.2m.
Other significant movements in non-current assets
were related to intangible assets, including goodwill
of $14.7m, recognised on the acquisition of Globe
Wireless, offset by the reclassification of our $23.5m
investment in Skywave from non-current assets to
current assets held for sale, in advance of the
disposal in January 2015.
The decrease in current liabilities of $356.1m relates
primarily to the reclassification of the Convertible
Bonds from current to non-current liabilities
($328.6m) during the year. The bonds were classified
as current liabilities at the end of 2013 because the
holders had the right to require the Company to
redeem all of the bonds at their accreted principal
amount on 16 November 2014 and that was
considered the most likely redemption date. However,
only $0.9m of the bonds were redeemed on that
date with the remaining bonds maturing on
16 November 2017.
Other significant changes to current liabilities since
2013 are the disposal of the held for sale liabilities
of $19m which represented the energy assets sold
to RigNet during the year and a decrease in trade
and other payables of $40.8m due to the release
of $43.8m of deferred income in relation to the
LightSquared Cooperation agreement. Deferred
revenue from LightSquared now stands at $208.8m
(2013: $252.6m).
The increase in non-current liabilities of $443.9m
is due to an increase in non-current borrowings
of $429.0m to $1,987.0m during the year. There
were two main components of the increase; the
reclassification of the Convertible Bonds from
current liabilities to non-current liabilities, which
added $301.3m as at 31 December 2014, and the
issue of $1.0bn of Senior Notes due 2022 in June
2014 to replace the $850m of Senior Notes due
2017 held by the Group at 31 December 2013.
TONY BATES
CHIEF FINANCIAL OFFICER
5 March 2015
GROUP BALANCE SHEET
The table below shows the condensed consolidated Group Balance Sheet at 31 December 2014
and 2013:
As at
31 December
2014
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
The net increase in current assets of $68.4m is
due to a number of factors including an increase in
cash and cash equivalents of $60.1m to $204.4m,
and an increase in prepayments of $37.8m, which
includes SpaceX prepaid launch fees for future
satellite missions, including I-5 F4. Further, included
in current assets at 31 December 2014 were assets
held for sale in respect of the Skywave disposal,
remeasured to fair value of $32.9m. Partially
offsetting these increases was the disposal of
assets used in our energy business to RigNet,
which reduced working capital balances (specifically
assets held for sale) by $42.8m during the year.
3,510.9
581.0
4,091.9
(682.7)
(2,226.1)
(2,908.8)
1,183.1
As at
31 December
2013
3,356.2
512.6
3,868.8
(1,038.8)
(1,782.2)
(2,821.0)
1,047.8
44
CORPORATE SOCIAL RESPONSIBILITY
OUR CONTINUED
COMMITMENT
RUPERT PEARCE
CHIEF EXECUTIVE
OFFICER
The Board believes that corporate and social
responsibility is an important part of the Group’s
culture and that the adoption of good practice will
have a positive impact on the business. Ensuring
we act in an ethical manner, taking account of our
responsibilities – socially and environmentally – is
important in the way we operate and interact with
our stakeholders, including investors, employees,
suppliers and business partners.
CODES OF CONDUCT
Our Code of Ethics expects Directors, officers and
employees to conduct business in accordance
with the highest standards of personal and
professional integrity. A copy of our Code is
published on our website.
CORPORATE SOCIAL RESPONSIBILITY OVERVIEW
ANOTHER SUCCESSFUL YEAR:
> MAINTAINING THE HIGHEST STANDARDS
OF PERSONAL AND PROFESSIONAL
INTEGRITY
> COMPLETED GLOBAL STAFF SURVEY –
PART OF THE ‘YEAR OF ENGAGEMENT’
> CONTINUING INVESTMENT IN MARITIME
AND AVIATION SAFETY SERVICES
> CONTINUING KEY CHARITABLE
COMMITMENTS
> NEW TECHNOLOGY DEVELOPMENT
PROGRAMME FOR STEM-BASED
GRADUATES
We comply with local laws where we operate and
across our Group, we ensure our employees comply
with UK Bribery Act and the US Foreign and Corrupt
Practices Act. Details of our anti-bribery policy can
be found on our website. As part of our commitment
to preventing bribery and establishing a culture
that does not tolerate corruption wherever and in
whatever form it may be encountered, we ask our
Directors, employees and contractors to confirm
annually that they understand the restrictions
outlined in the policy and the implications for
breaching the policy for the business and them as
individuals. Our anti-bribery policy operates in line
with guidance provided by the UK Ministry of Justice
and complies with current legislation. The policy
also incorporates guidelines on dealing with gifts
and accepting and giving hospitality.
We have separate policies in place dealing with ethics,
fraud, the use of inside information and whistleblowing.
Directors, employees and contractors are asked once
a year to confirm that they understand these policies
and how they are applied.
We recently put in place updated arrangements
for a worldwide anonymous telephone service for
employees to use if they have any concerns. We are
pleased to report that the external provider has not
received any calls.
We have recently established a Global Procurement
and Supply Management structure designed to
support the organisation, both today and in the
future. We buy a wide range of goods and services
and need reliable, high-performing suppliers across
all aspects of our supply chain. We will progressively
work to ensure that all our suppliers adhere to our
standards of ethical behaviour, environmental, health
and safety and other relevant working practises.
STRATEGIC REPORT
GOVERNANCE
We believe increasing employee effectiveness
drives the fulfilment of employee development
potential, motivation and happiness. This enables
us to attract and retain talent so delivering
enhanced employee performance.
The procurement and supply management function
will manage our global procurement activity which
has a significant annual expenditure across multiple
countries. We will do this via both central and local
procurement teams who are working to the same
high standards and best practises. In addition
common expenditure across the Company will
increasingly be managed and governed using a
Group-led category management approach. This
allows us to leverage scale and achieve better prices
and terms and conditions.
EMPLOYMENT
We recognise the importance of diversity amongst
our employees and are committed to ensuring that
employees are selected and promoted on the basis
of merit and ability, regardless of age, gender, race,
religion, sexual orientation or disability. The gender
split across the Group (excluding contingency
workers) as at March 2015 is illustrated in the
table below:
Description
Board
Executive
Management Board
Leadership Team
All employees
Male
Female
85%
15%
75%
82%
70%
25%
18%
30%
The percentage of females on the Executive
Management Board and wider leadership
team represent the definition as set out in the
Department for Business, Innovation and Skills
(BIS) requirements.
We have a policy of promoting employees internally
where possible and, where it makes sense for the
business and the individual’s personal development
and career enhancement, we will consider moving
employees to different office locations. We have
established policies which address key corporate
objectives in the management of employee relations,
communications and employee involvement, training
and personal development and equal opportunities.
Employees are assisted in their career development
through an annual appraisal scheme, and training
is provided to support this.
We do not discriminate against anyone who has
a disability when considering career development
opportunities. If an employee becomes disabled whilst
working for us, we would review the requirements of
their working environment to accommodate practical
changes as far as possible to allow them to continue
in their daily work routine. If such changes were
unrealistic to implement, we would review alternative
employment options for the individual within
the Company.
We have elected employee forums in the UK
and Batam in Indonesia, a Works Council in the
Netherlands and an Enterprise Agreement in Perth,
Australia and during 2015 we are actively preparing
to launch an international employee forum. These
groups extend two-way communications between
employees and management and allow the views
of employees to be taken into account in making
decisions which may affect their interests. In the UK,
the Staff Forum is an elected body constituted in
accordance with prevailing legislation to provide
the formal means of consultation on contractual
matters, as and when required. In the Netherlands,
the Works Council is constituted according to
local requirements.
We have well established Values and Qualities which
operate throughout the business. These are part
of the induction process for our employees and
are covered too as part of our induction process
for Directors, including our Non-Executive Directors.
Our values of Passion, Openness, being Enterprising
and Market-Driven are captured on pages 10 and 25.
The essence of them is ‘how’ people reflect these
values in dealing with each other as colleagues
and any third party. The qualities of how we engage
contribute to reward generally, whether through
bonus awards or promotion opportunities.
2014 was what we termed our Year of Engagement
with staff. Early in the year we undertook a global
staff survey with a 94% response rate which our
advisers, Hay Group, said exceeded the average
they would see for similar workforces, which would be
around 82%. We identified several core strengths:
> high levels of confidence in the future of the
Company and its offering;
> clear job expectations and overall good
understanding of the strategy;
> people are generally proud to work for
Inmarsat; and
> there is a strong foundation for achieving
the strategy at Inmarsat.
45
While there were some strong positive messages, we
have some areas where we can improve which are
noted below:
> whilst there is a good level of understanding of the
strategy overall, we need to ensure we clearly
explain it to all staff;
> we need to improve the ability for staff to get the
job done by ensuring they have the right
resources, systems and processes in place;
> we need to enhance our communications to
stimulate engagement across the business;
> coaching our line managers will help them fulfil
better their managerial responsibilities; and
> we are focused on ensuring we benchmark and
pay our staff fairly and reward them based on
financial results for the business and importantly
‘how’ to fulfil their objectives.
THE KEY CHALLENGES ARE:
> Implementing the strategy
> Barriers to getting the job done
> Leadership and communications
> Improve line manager capability
> Deliver on promises
(training, career development)
> Pay and reward
Employee effectiveness is measured through their:
> engagement with the business – their
commitment and level of discretionary effort; and
> enablement through having the right tools to do
their work, in a supportive environment.
We believe increasing employee effectiveness
drives the fulfilment of employee development
potential, motivation and happiness. This enables
us to attract and retain talent so delivering
enhanced employee performance.
Following the survey, we held staff briefings across
all the divisions with detailed plans for following
up across individual areas. We followed up with
six workstreams focused on corporate-wide
activities covering:
> Systems and processes;
> Communications;
> Leadership;
> Staff learning and development;
> Performance and reward; and
> Resources.
46
CORPORATE SOCIAL RESPONSIBILITY CONTINUED
The efforts and contributions of the teams of people
who have been involved in the workstreams and
those across the business in implementing action
plans have led to 2015 as our ‘Year of Enablement’.
We have already identified key areas of focus for
2015 which we expect to lead onto continued efforts
in 2016 and beyond:
> undertake a ‘Pulse’ Survey in early 2015 to
follow up on the 2014 staff survey, asking how
have we improved;
> a new framework for how we grade our staff
across the global business will be introduced
during the year;
> we will be undertaking a career development
matrix which staff can use to create an
understanding of different career paths in
the business;
> we are launching a leadership programme for the
Global Leadership Team (approximately 50 staff);
> a widely available management development
programme is available to all managers across
the business;
> improving the quality of performance reviews
to take account of our values and qualities;
> enhancing our on-line HR employee systems; and
> launching an International Staff Forum.
HEALTH AND SAFETY
We have been awarded
an International Safety
Award by the British
Safety Council.
The Inmarsat plc Board receives an annual update
on health and safety activity across the Group.
Rupert Pearce, CEO, has been identified as having
responsibility for health and safety issues within
the Group. We have a dedicated Health and Safety
Manager who is located in our headquarters office
and our subsidiary operations have identified
managers responsible for health and safety
across their operations.
Our goal is to encourage strong leadership in
championing the importance of, and a commonsense approach to health and safety in the
workplace. We recognise the need to provide a safe
working environment for our employees, contractors
and any visitors. Regular health and safety audits are
undertaken at operating sites across the Group.
Across the Group, we had 15 accidents or near
misses reported, and again we had no fatalities.
During the year we undertook the following
occupational health activities:
> a global cancer awareness programme which
was well received throughout the business;
> we launched our corporate, health, safety and
welling programme via Nebula (our online training
platform) and are pleased this has continued to
be popular with staff;
> a Pedometer Challenge gave staff the opportunity
to monitor their steps over a two-week period with
some very healthy numbers being recorded; and
> a successful Annual Health and Wellbeing Day
held in November across all Group offices.
We have identified four continuing health and
safety priorities based on business activities
and the potential harm to staff:
> Musculoskeletal disorders and DSE
(display screen equipment) related ill health;
> Working at height;
> Manual handling; and
> Lone working.
We provide training and awareness materials to
staff providing them with information on how to
deal with these specific areas of work.
We received news early in 2015 that we have
been awarded an International Safety Award by
the British Safety Council (BSC). We are delighted
to be recipients of this award which the BSC says
demonstrates a commitment to the health, safety
and wellbeing of our workforce during 2014.
EDUCATION
We continued with our funding of the Inmarsat
Chair of Maritime Education and Training at the
World Maritime University which supports the
education of maritime specialists. We encourage
internships with schools and universities to provide
students with the opportunity to experience
first-hand the engineering and technical
aspects of satellite operations.
STRATEGIC REPORT
GOVERNANCE
Top science, technology, engineering and
mathematics (STEM) students from London’s
leading Further Education College, City and
Islington College, successfully completed Inmarsat’s
inaugural 2014 Summer Strategy Challenge.
A selection of 11 high-performing Sixth Form
College and Applied Science students were tasked
to consider where the future of aviation connectivity
lay and present their findings at the final seminar.
The six-week programme included weekly workshops
at our head office, enabling students to gain
invaluable knowledge from experts within the field
of satellite communications and also to research
their own ideas. We received positive feedback from
the College and students themselves. Following on
from this success, we were delighted to be awarded
the College’s 'Employer of the Year' award for the
Summer Strategy Challenge programme.
We are also investing in the careers of future
engineers with an exciting new Technology
Development Programme, designed to provide newly
qualified STEM-based graduates with a platform
to develop a career in satellite communications.
The unique graduate scheme confirms Inmarsat’s
commitment to supporting and enabling the next
generation of world-class engineers. It includes a
two-year tailored programme of continuous learning
and development, with the continuation of
employment within a technology focused
team after these two years.
Since the United Nations declared 4-10 October
World Space Week in 1999, the annual celebration
of space science and technology has grown into
a significant public event. For the 2014 edition
‘Space: Guiding Your Way,’ Inmarsat helped extend
global awareness of the role that space-enabled
navigation technology and satellite communications
plays in our lives and encouraged young people
to learn about the potential career opportunities
that are open to them. By sponsoring the official
World Space Week poster, which was distributed to
thousands of schools and colleges around the world;
creating educational materials for teachers and
running a series of workshops for children linking
our sponsorship of the Volvo Ocean Race (VOR) with
World Space Week, we brought to life how satellite
technology supports the seven race teams in the
VOR with crucial communications and keeps them
safe by constantly pinpointing their location as
they chart their way around the world.
PARTNERSHIPS
The work our partners undertake with local companies
and charities are examples of the wider influence of
our services and we’re delighted how these can have
an impact socially and environmentally.
An important partnership we announced during
2014 was the signing of a Memorandum of
Agreement with the Global eHealth Foundation.
As a Partner to the Foundation, our services can
help support the development, trial and delivery of
innovative telemedicine initiatives around the world.
The move aims to connect healthcare specialists
across the world with patients in sub-Saharan Africa
and other remote locations, helping to break down
healthcare barriers.
The Global eHealth Foundation wants to start a
technology-enabled healthcare revolution by
working with governments to coordinate funding,
education, technology and advocacy. It aims to
drive policy and provide access to health services
in underserved communities. Using innovative
mobile phone apps and best practice models, the
Foundation hopes to transform health services
in the developing world and promote the
development of integrated e-health systems.
47
We are also investing
in the careers of
future engineers
with an exciting new
Technology Development
Programme, designed
to provide newly qualified
STEM-based graduates
with a platform to
develop a career in
satellite communications.
48
CORPORATE SOCIAL RESPONSIBILITY CONTINUED
COMMUNITY
Our maritime heritage plays a key reminder to us of how
we have supported mariners and the wider maritime
community for over 35 years and remain focused on
doing so in the future. Our key activities are:
> we remain the only approved provider of satellite
communications services for GMDSS and we
continue to invest in the development of
maritime safety services;
> our Inmarsat C SafetyNET service continues
to be used to provide vital updates on reported
pirate activity. The service enables ship masters
to access reports of pirate movements, giving
them information to know which regions to avoid
with high pirate activity and allowing them to
re-route if necessary;
> our safety services supported around 750 calls
made from vessels with safety, distress or urgency
requirements, providing a very real reminder to
us of the value of what we provide to those in
need; and
> the 2014-15 Volvo Ocean Race, where Inmarsat
is the airtime provider, relies on our safety
services for the crews to maintain communication
at all times, wherever they are. FleetBroadband,
Inmarsat C and our handheld phone are all
standard equipment. Please see page 31 for
details of how our IsatPhone 2 was used in an
emergency when one of the boats ran aground.
In addition to maritime safety services, we also
promote safety services to the aviation industry
for use in the cockpit. We remain committed to the
provision of ICAO approved satellite safety services,
and we invested in and upgraded the ground
infrastructure that supports our Aero Classic safety
services and are expanding our safety offerings to
our SwiftBroadband service. We are supportive
of the announcement that has come following the
resolution made in early 2015 by ICAO, the United
Nations aviation body tasked with monitoring the
global aviation industry, to adopt a new 15-minute
aircraft tracking standard. It is our desire to
contribute to ICAO’s work by sharing our experiences
with them. We believe that our existing and already
available technology is one solution highly suitable
to many operational aviation circumstances today.
During the year, we made no political donations. In
2013 our contributions included a pre-payment of our
2014 commitments for the telecommunications relief
aid organisation, Télécoms Sans Frontières (TSF)
of $200,000 and a payment of $118,000 to the
World Maritime University as part of our support
for the education of maritime specialists. As these
Our core charitable
support remains focused
on the work carried
out by Télécoms
Sans Frontières.
two pre-payments represent the majority of
our charitable payments, the amount paid in
2014 was $53,916. In addition, we provide satellite
telecommunications services and equipment, in
conjunction with support offered by our DPs and
manufacturers, to service providers and customers
in support of disaster relief management in affected
areas of the world. Our subsidiary companies also
make contributions to local charitable causes.
Our core charitable support remains focused on the
work carried out by TSF, the telecommunications
relief aid organisation. TSF runs programmes on
disaster relief and preparedness, training other relief
organisations and regional and national disaster
response agencies about the available capabilities
for emergency telecommunications. TSF help these
organisations respond to an emergency knowing
they have the necessary training to use BGAN
terminals and IsatPhones, our handheld satellite
phone. We believe the work TSF does is vital in
emergency situations and we are delighted to
continue to support them.
TSF were active in multiple countries during the
year including:
> a UN-organised exercise in Argentina which
brought together members of the United Nations
Disaster Assessment and Coordination division
and its humanitarian partners;
> with the UN and active NGOs in the Philippines
before deploying to the country's most affected
disaster zones;
> setting up a deployment base in Nicaragua in
Central America;
> being part of the Malagasy government disaster
simulation for the National Bureau of Risk and
Disaster Management of Madagascar;
> monitoring the situation of Kurdish refugees
on the Turkish-Syrian border; and
> setting up a new e-learning centre in Iraq.
Our Universal Service Obligations seek to support
the use of our services, normally payphones, in
rural villages in remote regions of the world, where
terrestrial voice services are poor or non-existent.
We continue to invest
in the development of
Maritime safety services.
We maintain our support for the International
Telecommunications Union (ITU) in various ways.
During 2014, we signed an MoU with ITU-D in the
framework of the Smart Sustainable Development
Model which aims to foster the use of satellite
broadband services in remote or under-developed
areas. It promotes the use by local communities of
satellite terminals and spare airtime that are in place
as a contingency for disaster relief when they are not
required for relief operations. Under the MoU, the ITU
procures terminals, we provide spare capacity and
local communities provide suitable locations (e.g. a
school/community centre). We have committed to
$100,000 worth of airtime over a three-year period
which will start to be drawn against when the ITU
identifies a project in a suitable community.
In addition to our corporate sponsorship of TSF,
our Business Units identify specific charities and
sponsorship opportunities and details of these are
provided on our website, inmarsat.com, under the
press release section.
Our global offices support local causes at a
corporate and employee level and we encourage
staff to get involved in local community initiatives.
Employees across our offices are encouraged to
support individual charities of their choice, and
for employees in our principal UK office, this is
encouraged through the UK Government’s tax
approved contributions scheme.
STRATEGIC REPORT
GOVERNANCE
49
Our objective is to ensure that the Group does not
have any detrimental effect on the environment
through our business operations. Our mission is to
adopt and support the following principles:
ENVIRONMENT
The activities of the Group are judged to have a low
environmental impact and are not expected to give
rise to any significant, inherent environmental risks
over the next 12 months.
We are not a satellite modem manufacturer. We
only type approve satellite terminals accessing our
system by manufacturers who provide health and
safety guidance as to how terminals should be
utilised. Controls are in place to ensure that
antennae do not radiate any power at low elevation
angles. We manufacture our handheld satellite
phones, IsatPhone Pro and IsatPhone 2. The design
and manufacturing processes have met all the
relevant safety standards and disposal requirements
are included in the packaging for each handset.
Across our Group companies, we operate a number
of ground earth stations, VSAT and telemetry and
tracking facilities where there are satellite dishes
which generate radiation. Access to these sites is
restricted and there are regular health and safety
checks to ensure that they are in protected areas
away from access by the general public. Personnel
who work at these sites are provided with relevant
training as to health and safety issues.
As a satellite operator, we have adopted the
highest industry standards in terms of space
debris mitigation, including end-of-life graveyard
manoeuvre plans for the disposal of satellites when
they reach the end of their commercial life. We
disposed of our final Inmarsat-2 satellite in 2014.
The previous three Inmarsat-2 satellites had been
deorbited in 2013, 2012 and 2007. Their disposal
was undertaken in full compliance with the relevant
ITU standards. We also decommissioned a satellite
we operated for an Asian partner in early 2015. There
are no near-term plans for decommissioning any
of the remaining satellites. We operate our satellites
in geosynchronous orbit which is approximately
36,000km (22,500 miles) above the earth. This orbit
has significantly less debris than in a low earth orbit
which is approximately 700km above the earth and
where several MSS operators have their satellite
constellations. We were also a founding member
of the Space Data Association. Along with Intelsat,
SES and Eutelsat we aim to improve the satellite
safety of flight and make operations in space safer
and more reliable.
We have approximately 1,600 staff worldwide
represented by more than 45 different nationalities.
Due to the size and nature of these activities, we
acknowledge that we have a degree of environmental
impact on the local and global environment. However,
in terms of our size, we are low generators of carbon
due to the nature of our business operations.
Some of these environmental impacts include the
use of natural resources, the consumption of energy
and water, the production of a variety of waste, in
addition to staff and visitors travelling for business
purposes around the globe.
We acknowledge that we have an impact on the
local and global environment. However, in terms
of our size, we are low generators of carbon due
to the nature of our business operations.
> to provide first class energy and environmental
management practices;
> to comply with all relevant global environmental
legislation and regulatory controls;
> to identify significant environmental and social
impacts and establish objectives and targets
for improvement;
> in our main UK site, to recycle a minimum of 90%
of generated waste and to constantly to review
the opportunity to use recycled products;
> to actively encourage the conservation of
energy, water and natural resources through
the increased efficiency and introduction of
new and modern technology; and
> to encourage all employees to be proactive
in their daily activities by:
– separating their waste into dry and wet waste
receptacles (currently UK and Canadian sites
and we are reviewing introduction globally);
– ensuring that printer cartridges are recycled;
– switching off lights, computers, phone
chargers and any other electrical items
when not in use; and
– reducing business travel and using more
site-based technology such as video and
audio conferencing.
We continue to monitor our energy consumptions
and comply with our social and legal responsibilities
in terms of carbon emissions. Please see our
summary of carbon emissions within the Directors’
Report on page 54.
Energy efficiency is one of the key considerations
when replacing obsolete and inefficient machinery.
We continue to review new technologies and
control building operational strategies, which may
include using energy efficient lights to reduce
electricity consumption.
We continue to be committed to our waste
management and recycling scheme.
Video conferencing (VC) and other collaboration
tools allowing visual connectivity are being used to
reduce the dependency on air transport and are a
popular means of communication with staff working
in different locations and across different time zones.
RUPERT PEARCE
CHIEF EXECUTIVE OFFICER
5 March 2015
The Strategic Report, as set out on pages 1
to 49, has been approved by the Board.
On behalf of the Board
ALISON HORROCKS
EXECUTIVE VICE PRESIDENT – CORPORATE
GOVERNANCE AND COMPANY SECRETARY
5 March 2015
50
BOARD OF DIRECTORS
STRONG LEADERSHIP
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
1.
2.
3.
4.
5.
6.
7.
8.
Andrew Sukawaty
Rupert Pearce
Tony Bates
Simon Bax
Sir Bryan Carsberg
Stephen Davidson
Kathleen Flaherty
General C. Robert Kehler (Rtd)
9.
10.
11.
12.
13.
14.
Ambassador Janice Obuchowski
Dr Abraham Peled
John Rennocks
Robert Ruijter
Dr Hamadoun Touré
Alison Horrocks
(Company Secretary)
STRATEGIC REPORT
GOVERNANCE
51
1. ANDREW SUKAWATY
5. SIR BRYAN CARSBERG
CHAIRMAN
Date of Appointment: Chairman – December 2003
Executive Chairman and Chief Executive Officer – March 2004 – December 2011
Executive Chairman – January 2012 – December 2014
Non-Executive Chairman – January 2015
Committee Membership: Chairman of the Nominations Committee
Background and relevant experience: Andy served as Non-Executive
Chairman of Ziggo N.V. until November 2014. He has previously been President
and Chief Executive Officer of Sprint PCS, a NYSE listed global national wireless
carrier and Chief Executive Officer of NTL Limited. He has also held various
management positions with US West and AT&T and been a Non-Executive
Director on various listed companies. Andy holds a BBA and MBA respectively
from the University of Wisconsin and Minnesota.
External Appointments: Non-Executive Director of Sky plc and
Executive-in-Residence for Warburg Pincus.
INDEPENDENT NON-EXECUTIVE DIRECTOR
Date of Appointment: June 2005
Committee Membership: Member of the Audit and Remuneration Committees
Background and relevant experience: Sir Bryan is a Chartered Accountant.
He spent eight years as Director General of Telecommunications (head of Oftel),
and then served as Director General of Fair Trading and Secretary General of the
International Accounting Standards Board. He was previously Chairman of the
Council of Loughborough University; Non-Executive Director of Cable and
Wireless Communications plc; RM plc and Non-Executive Chairman of MLL
Telecom Limited. He was knighted in January 1989. Sir Bryan is an Honorary
Fellow of the Institute of Actuaries and holds an MSc (Econ) from the University
of London.
External Appointments: Non-Executive Director of Novae Group plc;
Non-Executive Director of Actual Experience plc.
6. STEPHEN DAVIDSON
2. RUPERT PEARCE
Date of Appointment: Executive Director – July 2011
Chief Executive Officer – January 2012
Background and relevant experience: Rupert joined Inmarsat in January 2005
as Group General Counsel and from January 2009, additionally held the position
of Senior Vice President, Inmarsat Enterprises. Previously, Rupert worked for
Atlas Venture, where he was a partner working with the firm’s European and US
investment teams. He was also a partner at the international law firm Linklaters,
where he spent 13 years specialising in corporate finance, mergers and
acquisitions and private equity transactions. Rupert received an MA (First Class)
in Modern History from Oxford University and won the 1995 Fulbright Fellowship in
US securities law, studying at the Georgetown Law Center. He has been a visiting
fellow of the Imperial College Business School, London lecturing on the school’s
Entrepreneurship programme, and is the co-author of ‘Raising Venture
Capital’ (Wiley).
External Appointments: None.
3. TONY BATES
Background and relevant experience: Tony was previously the Group CFO
of hibu plc (previously Yell Group Plc) where he played a leading role in the
multi-billion pound refinancing of the Group and in the delivery of a much
lower cost operating model. Prior to hibu, Tony was Chief Operating Officer
of Colt Group S.A., the pan-European business telecoms operator, where he
was responsible for the Finance function from 2003 to 2009. His previous
senior management experience was mainly with EMI Group plc, latterly as
Group Finance Director. Tony holds a First Class BSc in Management
Sciences from the University of Manchester Institute of Science and Technology.
He is a Fellow of the Institute of Chartered Accountants in England and Wales.
External Appointments: None.
4. SIMON BAX
Date of Appointment: May 2013
Committee Membership: Member of the Remuneration Committee;
Chairman of the Committee effective May 2015
Background and relevant experience: Simon Bax was, from 2008 to 2013,
CEO of Encompass Digital Media Inc, which provides technical services to
broadcasters, cable networks and government agencies. He previously served
as CFO and Executive Vice President of Pixar Animation and CFO and President
of Studio Operations of Fox Filmed Entertainment. Mr Bax holds an honours
degree in History from Cambridge University and is a chartered accountant.
External Appointments: Chairman of Archant Ltd; and Non-Executive Director
of MobiTV Inc, and Pulsant Ltd; Director of the British Bobsleigh and Skeleton
Association; A member of the Academy of Motion Pictures Arts and Sciences
and the British Academy of Film and Television Arts.
Committee Membership: Chairman of the Remuneration Committee;
Member of the Committee effective May 2015. Member of the Audit and
the Nominations Committees
Background and relevant experience: Stephen held various positions
in Investment Banking, finally at West LB Panmure where he was Global
Head of Media and Telecoms and Vice Chairman of Investment Banking.
From 1993 to 1998 Stephen was Finance Director, then Chief Executive
Officer of Telewest Communications plc. He was Chairman of the Cable
Communications Association from 1996 to 1998. Stephen holds a first class
Honours degree in Mathematics and Statistics from the University of Aberdeen.
External Appointments: Chairman of Datatec Limited, Actual Experience plc
and PRS for music; Non-Executive Director of Restore plc; Deputy Chairman
of Jaywing Group plc.
7. KATHLEEN FLAHERTY
Committee Membership: Member of the Remuneration Committee
Background and relevant experience: Kathleen has served on the Board of
a number of public companies including Marconi Corporation plc, Telent plc
and CMS Energy Corporation. She was President and Chief Operating Officer
of Winstar International. Her previous career has included senior roles as
Chief Marketing Officer with AT&T and other senior roles with BT and MCI
Communications Inc. Kathleen was a non-executive director of GenTek Inc until
October 2009 and hibu plc until March 2014. Kathleen holds a PhD in Industrial
Engineering and Management Sciences from Northwestern University, Illinois.
External Appointments: A member of the McCormick Advisory Board and its
executive committee of Northwestern University.
8. GENERAL C. ROBERT KEHLER (Rtd)
Committee Membership: Member of the Remuneration Committee
Background and relevant experience: General Kehler retired from the US Air
Force in January 2014 with over 38 years of service. He oversaw a global network
of satellite command and control, communications, missile warning and launch
facilities, and ensured the combat readiness of America’s intercontinental
ballistic missile force. Over his career, he served in a variety of important
operational and staff assignments, and successfully led large organisations
with global responsibilities.
External Appointments: Proxy board of directors of BEI Precision Systems
and Space Company; Trustee of the Mitre Corporation; Member of the Advisory
Board for Outreach and Online Education of the Pennsylvania State University;
Senior Fellow of the National Defense University; Visiting Lecturer for academic
year 2014-15, Stanford University Center for International Security and
Cooperation; Senior advisor to McKinsey and Company.
52
BOARD OF DIRECTORS CONTINUED
9. AMBASSADOR JANICE OBUCHOWSKI
13. DR HAMADOUN TOURÉ
Committee Membership: Member of the Audit Committee
Background and relevant experience: Janice held several senior
positions both in the US Government and in the private sector. She
was formerly Head of Delegation and US Ambassador to the World
Radiocommunications Conference, Assistant Secretary for Communications
and Information at the Department of Commerce and Senior Advisor to
the Chairman at the Federal Communications Commission in the US.
External Appointments: Non-Executive Director of Orbital ATK;
Non-Executive Director of CSG Systems, Inc; President of Freedom
Technologies Inc.
Date of Appointment: March 2015
Committee Membership: Member of the Nominations Committee
Background and relevant experience: Hamadoun was Secretary General of
the International Telecommunication Union (ITU), the specialised agency of the
United Nations dedicated to information and communication technologies from
2007 to 2014. He was the founding member of the Broadband Commission for
Digital Development and served as co-vice chair until his retirement from the ITU.
He has also had a distinguished career in the satellite industry.
External Appointments: Advisory Board of the International Multilateral
Partnership Against Cyber Threats; Member of the UN Chief Executive Board.
14. ALISON HORROCKS
10. DR ABRAHAM PELED
Committee Membership: Member of the Nominations Committee
Background and relevant experience: Abe spent from 1995 to 2012
with NDS Group plc, a digital pay-TV company, and served as Chairman and CEO
from 2004 to 2012. He was Senior Vice President of Cisco from August 2012
to January 2014 and has previous senior management experience with IBM
and Elron. Abe has a BSc and MSc in Electrical Engineering and a PhD in
Digital Signal Processing. In March 2013, he was awarded the Lifetime
Achievement Award by Digital TV Europe.
External Appointments: Principal to CyberCloud Ventures. Senior advisor
on technology businesses to Permira.
EXECUTIVE VICE PRESIDENT – CORPORATE GOVERNANCE
AND COMPANY SECRETARY
Date of Appointment: February 1999
Background and relevant experience: Alison joined Inmarsat in 1999 and
provides corporate governance advice and acts as Company Secretary to the
Board and its Committees. She is a member of the Executive Management Board
and Chairman of the Trustee Company responsible for Inmarsat’s UK pension
plans. Alison is a Fellow of the Chartered Secretaries and Administrators. She was
Group Company Secretary of International Public Relations plc, a worldwide
public relations company, for 11 years prior to joining Inmarsat.
BOARD DIVERSITY
11. JOHN RENNOCKS
DEPUTY CHAIRMAN AND SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR
Date of Appointment: January 2005
Committee Membership: Chairman of the Audit Committee and member
of the Nominations Committee
Background and relevant experience: John has broad experience in
biotechnology, support services and manufacturing. He served as NonExecutive Chairman of Diploma plc until January 2015 and as an Executive
Director – Finance of a number of public companies including British Steel plc/
Corus Group plc, Powergen plc and Smith & Nephew plc. John is a Fellow of the
Institute of Chartered Accountants of England and Wales.
External Appointments: Non-Executive Chairman of Bluefield Solar Income
Fund Ltd; Non-Executive Director of Greenko Group plc.
12. ROBERT RUIJTER
Date of Appointment: February 2015
Committee Membership: Member of the Audit Committee
Background and relevant experience: Rob served as Chief Financial Officer of
VNU N.V., a publicly listed marketing and publishing company (now the Nielsen
company) between 2004 and 2007. He previously served as the Chief Financial
Officer of KLM Royal Dutch Airlines from 2001 until its merger with Air France in
2004, and as Chief Financial Officer of ASM International N.V. a publicly listed
manufacturer of electronic components. Rob is a Certified Public Accountant in
the United States and in The Netherlands and a member of the ACT in the UK.
External Appointments: Member of the Supervisory Board of Wavin N.V.;
Member of the Supervisory Board of Ziggo N.V.; Member of Supervisory Board
of Delta Lloyd N.V.; Non-Executive Director of Interxion N.V. (NYSE).
BOARD EXPERIENCE
> Regulatory
> Marketing
> Government
> Telecommunications
> Technology
> Financial management
> Developing economies
> Manufacturing
> Cyber security
> Customer service management
BOARD COMPOSITION
Executive:
Non-Executive:
2
11
Male:
Female:
11
2
BOARD TENURE
0-3 Years: 6
4-8 Years: 2
9-10 Years: 5
NATIONALITIES
The Netherlands
UK
Mali
USA
STRATEGIC REPORT
GOVERNANCE
53
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014
BRANCHES
The Group has activities operated through many jurisdictions.
CAPITAL STRUCTURE AND RIGHTS ATTACHING TO SHARES
The Company’s ordinary shares of Euro 0.0005 each are listed on the London
Stock Exchange (LSE: ISAT.L). Details of the issued share capital of the Company,
together with movements in the issued share capital during the year can be
found in note 24 to the consolidated financial statements.
The Company has one class of ordinary share which carries no rights to
fixed income. On a poll, each member is entitled to one vote for each share of
Euro 0.0005 held. All 275,189 ordinary shares held by the Inmarsat Employee
Share Ownership Trust carry voting rights.
ALISON HORROCKS
The Directors have pleasure in submitting their report and the audited financial
statements for the year ended 31 December 2014.
This report has been prepared in accordance with requirements outlined within
The Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 and forms part of the management report as required
under Disclosure and Transparency Rule 4. Certain information that fulfils the
requirements of the Directors’ Report can be found elsewhere in this document
and is referred to below. This information is incorporated into the Directors’
Report by reference.
Set out below is the relevant information required to be disclosed in the
Directors’ Report in accordance with Listing Rule 9.8.4R.
RESPONSIBILITY STATEMENT
As required under the Disclosure and Transparency Rules a statement made
by the Board regarding the preparation of the financial statements is set out
on page 83.
BUSINESS REVIEW, STRATEGIC REPORT AND
FUTURE DEVELOPMENTS
The Business Review is set out on pages 29 to 37 and the Strategic Report is
set out in pages 1 to 49 and they are incorporated into this Report by reference.
This also provides details of likely future developments within the Group.
CORPORATE GOVERNANCE REPORT
Under Disclosure and Transparency Rule 7, a requirement exists for certain parts
of the Corporate Governance Report to be outlined in the Directors’ Report.
This information is laid out in the Corporate Governance Report on pages
56 to 65.
POST-BALANCE SHEET EVENTS
Details of material post-balance sheet events are included in note 38 to the
consolidated financial statements. Details of the change in the Remuneration
Committee Chairman which will be effective following the 2015 AGM is noted
in several sections of the Annual Report, including the Corporate Governance
Report on page 59.
There are no specific restrictions on the size of holding or on the transfer
of shares, which are both governed by the general provisions of the articles
of association and prevailing legislation. The Directors are not aware of any
arrangements between shareholders that may result in restrictions on the
transfer of securities or on voting rights. No person has any special rights of
control over the Company’s share capital and all issued shares are fully paid.
GOING CONCERN
The Directors acknowledge the latest guidance on going concern. Despite
the current volatility in financial markets and uncertain economic outlook, the
Directors believe that the Group has a resilient business model, strong free cash
flow generation and is compliant with all its financial covenants. In making their
assessment of going concern, the Directors considered the Board-approved
budget, the rolling forecast, the cash flow forecast and the most recent fiveyear long range business plan. In addition, the Directors considered the maturity
profile of existing debt facilities, other liabilities as well as actual and forecast
covenant calculations. Furthermore, the forecasts and covenant calculations
were stress tested by applying a set of downside scenarios. After making
enquiries, the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable
future. Accordingly, Inmarsat continues to adopt the going concern basis in
preparing the consolidated financial statements.
VIABILITY STATEMENT
As set out in the Financial Reporting Council’s 2014 UK Corporate Governance
Code, there is a requirement to include in future reports a broader assessment
by the Board of the Company’s ongoing viability. The Company will comply with
the requirement to report on this in the future.
ON-MARKET PURCHASE AUTHORITY
The Directors’ authorities are determined by UK legislation and the articles of
association. At the 2014 AGM, the Directors were authorised by shareholders to
allot ordinary shares up to agreed limits and to have the ability to make market
purchases of ordinary shares. Shareholders are being requested to renew these
authorities at the 2015 AGM.
INDEMNITIES AND INSURANCE
Details of the Directors’ and Officers’ liability insurance and the indemnities
provided to the Directors, Company Secretary and certain employees where they
serve as directors of subsidiaries at the Group’s request are provided on page 58
in the Corporate Governance Report.
EMPLOYMENT POLICIES AND EMPLOYEE INVOLVEMENT
Details of the employment policies and employee involvement are provided on
pages 45 and 46 in the Corporate Social Responsibility Report.
RESULTS AND DIVIDENDS
The results for the year are shown in the Consolidated Income Statement
on page 88.
A final dividend of 30.26 cents (US$) will be paid on 29 May 2015 to
shareholders on the share register at the close of business on 15 May 2015.
Dividend payments are made in Pounds Sterling based on the exchange rate
prevailing in the London market four business days prior to payment.
HEALTH AND SAFETY
The Group is committed to maintaining high standards of health and safety for its
employees, customers, visitors, contractors and anyone affected by its business
activities. During 2014, we have continued to work closely with our subsidiary
companies to harmonise health and safety best practice. Rupert Pearce, our
CEO, is the Director designated for health and safety matters at Board level.
54
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014 CONTINUED
ENVIRONMENTAL PERFORMANCE AND STRATEGY
We operate in over 50 locations with a combined workforce of approximately
1,600 staff. Due to our diversity of activities the Company recognises it has
some impacts affecting the local and global environment. However, it should
be noted that the satellite industry and our own business is low on the scale of
carbon generators.
Our environmental impacts include the use of natural resources, the
consumption of energy and water, the production of a variety of waste, as well
as staff and visitors who travel extensively.
All energy, fuel and waste management are controlled by the Business
Environment team which is based in London.
GREENHOUSE GAS (GHG) EMISSIONS
This section has been prepared in accordance with our regulatory obligation to
report greenhouse gas emissions pursuant to Section 7 of The Companies Act
2006 (Strategic Report and Directors’ Report) Regulations 2013. We are
reporting our greenhouse gas emissions from our global operations.
During the 2014 financial year, we emitted a total of 20,145 tCO2e from fuel
combustion and operation of our facilities (Scope 1 direct) and electricity
purchased for our own use (Scope 2 indirect). This is equal to 44.1 tCO2e per
Million Megabytes of IP over our BGAN Network. We have also chosen to
voluntarily report Scope 3 emissions arising from our business travel.
The table below shows our tCO2e emissions for the years ended 31 December
2014 and 2013:
tCO2e emissions
Combustion of fuel and operation
of facilities (Scope 1)
Electricity, heat, steam and cooling
purchased for our own use (Scope 2)
Total Scope 1 and 2
tCO2 e per million megabytes of IP
over our BGAN Network
Other indirect emissions (Scope 3)
2014
2013
1,198
1,396
18,947
20,145
17,932
19,327
44.1
3,361
57.0
2,905
As can be seen above, since 2013 our absolute emissions have increased by
5.7%. This is principally due to the introduction of new satellite services and an
expanded ground network, as well as an increase in the availability and quality
of data from our international locations as a result of the implementation
of our global environmental data programme during 2014. Emissions at our
London Head Office location also increased due to the slight rise in electricity
consumption, compounded by a higher emission factor as a result of greater
coal power supply to the UK grid in 2014.
GREENHOUSE GAS EMISSIONS
Total emissions 2014 (tCO2e)
Emissions intensity (tCO2e)
Scope 1
1,198
Scope 3
3,361
57.0
44.1
Scope 2
18,947
2013
2014
Methodology
We quantify and report our organisational greenhouse gas emissions according
to ISO 14064-1:2006 and have utilised the UK Government 2013 Conversion
Factors for Company Reporting in order to calculate CO2 equivalent emissions
from corresponding activity data. We have also taken certain data used for
compliance with the CRC Energy Efficiency Scheme.
In order to improve monitoring and management of our climate change
impact, we established a global environmental data programme during 2014
in collaboration with an external organisation Carbon Credentials. This has
improved oversight around our energy consumption and increased the quality
and availability of performance information for decision-making. This will
also allow us to set emissions reduction targets and monitor performance
by location going forwards.
Reporting boundaries and limitations
We consolidate our organisational boundary according to the operational
control approach and have adopted a materiality threshold of 10% for GHG
reporting purposes. As a result, emissions from locations with less than 15 staff
on-site have been reasonably estimated as immaterial and are thus excluded
from our GHG disclosure. Emissions for all significant sites have been disclosed,
which includes Perth (Australia), London (UK), Burum (The Netherlands),
Pamalu (USA) and Batam (Indonesia).
The GHG sources that constitute our operational boundary for the 2014
reporting period are:
> Scope 1: Natural gas combustion within boilers, gasoil combustion within
generators, road fuel combustion within vehicles, and fugitive refrigerants
from air-conditioning equipment;
> Scope 2: Purchased electricity consumption for our own use; and
> Scope 3: Business travel.
Assumptions and Estimations
In some cases, missing data has been estimated using either extrapolation
of available data from the reporting period or data from 2013 as a proxy.
Furthermore, due to an incomplete 2013 dataset, we have also restated last
year’s emissions figures. This allows us to make a more accurate performance
comparison between 2013 and 2014.
ENVIRONMENT IMPROVEMENT IN 2014
We regularly look for opportunities and initiatives to drive down consumption
in the London office where the largest contingent of staff is based. The projects
below summarise the work carried out in 2014.
1. Carbon reduction energy efficient controllers fitted to main air handling
units which provide fresh and conditioned (hot or cold) air to the office.
2. Modifications to boilers and pipe work to improve efficiency. Further works
to improve operational savings have been implemented during 2014.
3. Stagger plant on/off times. This was enhanced during 2014 with the
installation of high efficiency motors and soft start inverter controls
to all main air conditioning plant, giving flexibility to optimise daytime
run conditions.
4. Upgrade lighting to LEDs. We have initiated a rolling programme to change
where practical. This programme has continued with an increase in numbers
being installed and savings being made.
5. Install movement sensors in common areas to switch lighting on/off.
This has been further enhanced during 2014 with the addition of daylight
sensors in key work areas.
6. Alterations to existing, obsolete, lighting control system to eliminate excessive
on times. This was ongoing during 2014 to optimise existing savings.
7. Extensive use of our Building Management System to efficiently control
the building operating times in terms of occupancy and temperature
control. Continuation of this strategy is providing savings.
8. Installation of adiabatic system to improve efficiency of air-cooled
condensers. Enhancements to how this is managed have enabled
additional efficiency benefits.
STRATEGIC REPORT
GOVERNANCE
COMMERCIAL WASTE
In the London office and its major sites Inmarsat continues to be progressive
in its approach to waste management. Recycling is managed locally in the
larger sites with the separation of plastics, paper and non-recyclable materials.
The 2015 plan is to develop a reporting mechanism to reflect the volumes of
recycled materials in the larger offices.
In the head office in London which is the single largest office for the Group, we
do not send any waste to landfill and this policy has been in place since 2009.
We separate our waste into three streams: recyclable, non-recyclable and
confidential waste. Confidential waste is shredded and pulped and reused in
paper products. The non-recyclable material is incinerated and converted
to electricity and all other waste is recycled. In 2014 Inmarsat’s contractors
collected 57 tonnes of waste from the London head office site for processing.
TRAVEL
Inmarsat continues to voluntarily report its Scope 3 (travel emissions).
Centralisation of the travel management activities has continued across
the Group and our travel agencies supply the emission data.
The Scope 3 emissions reported by our travel agencies and our internal travel
team account for 60% of the Group‘s travel.
RULES GOVERNING DIRECTORS’ APPOINTMENTS
Rules governing Directors’ appointments are provided on page 60 of the
Corporate Governance Report.
DIRECTORS’ POWER
Details of Directors’ powers are provided on pages 58 and 59 of the Corporate
Governance Report.
DIRECTORS AND THEIR INTERESTS
A full list of the individuals who were Directors of the Company during the financial
year ended 31 December 2014 is set out below:
Andrew Sukawaty, Rupert Pearce, Tony Bates, John Rennocks, Stephen Davidson,
Janice Obuchowski, Kathleen Flaherty, General C. Robert Kehler (Rtd), Sir Bryan
Carsberg, Abe Peled, Simon Bax. Rtd Admiral James Ellis Jnr and Rick Medlock
were Directors for part of 2014.
Details of each Director’s interests in the Company’s ordinary shares and share
awards held are set out in full on pages 81 and 82.
Details of the Directors’ conflicts of interest policy are provided on pages 58.
ARTICLES OF ASSOCIATION
PRINCIPAL RISKS AND UNCERTAINTIES
Details of principal risks and uncertainties are provided on pages 27 and 28.
The articles of association can be amended by special resolution of the
shareholders.
FINANCIAL RISK MANAGEMENT
AUDITOR
Details of the financial risk management objectives and policies of the Group,
including hedging policies and exposure of the entity to price risk, credit risk,
liquidity risk and cash flow risk are given in notes 3 and 32 to the consolidated
financial statements.
Each of the Directors has confirmed that:
RESEARCH AND DEVELOPMENT
The Group continues to invest in new services and technology necessary
to support its activities through research and development programmes.
During the year, no political donations were made. It remains the policy
of the Company not to make political donations or incur political expenditure.
However, the Directors recognise that occasions arise where it may be in the
best interests of shareholders for the Company to be able, if appropriate, to
participate in public debate and opinion-forming on matters which affect
its business. To avoid inadvertent infringement of the requirements of the
Companies Act 2006, shareholders are asked annually to give authority
at the Annual General Meeting for the Company to make political donations
and to incur political expenditure.
INTERESTS IN VOTING RIGHTS
A resolution to re-appoint Deloitte LLP as Auditor of the Company and to
authorise the Board to determine its remuneration will be proposed at the
2015 AGM.
2015 ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 6 May 2015 at 10.00am at 99 City
Road, London EC1Y 1AX. The Notice of Meeting which sets out the resolutions
to be proposed at the forthcoming AGM is enclosed with this Annual Report.
By order of the Board
As at 5 March 2015, the Company had been notified, in accordance with chapter
5 of the Financial Services Authority’s Disclosure and Transparency Rules, of the
following significant interests:
Percentage of voting
rights over ordinary
shares of €0.0005 each
Lansdowne Partners Limited
BlackRock Inc
Aberdeen Asset Managers
MassMutual Life Insurance
Company
Artemis Investment Management
i) so far as the Director is aware, there is no relevant audit information of which
the Company’s Auditor is unaware; and
ii) the Director has taken all the steps that he/she ought to have taken as a
Director to make him/herself aware of any relevant audit information and
to establish that the Company’s Auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the
provisions of s418 of the Companies Act 2006.
POLITICAL DONATIONS
11.44%
6.71%
4.42%
4.01%
3.22%
Note: Voting rights are based on the information we believe is a disclosable interest to the
Company, adjusted for the issued share capital as at 5 March 2015.
55
ALISON HORROCKS FCIS
5 March 2015
56
CORPORATE GOVERNANCE
THE BOARD
COMPOSITION
Our Board comprises Directors drawn from a wide range of professional
backgrounds. All our Directors bring strong judgement to the Board’s
deliberations. In 2014 and in early 2015 we have made great progress to appoint
additional Non-Executive Directors who are becoming fully up to speed with how
the Company operates and its business. We took the decision to appoint these
additional Directors while retaining the expertise of our existing Directors thus
enabling us to have an orderly retirement process of longer-serving Board
Directors over the coming years. In 2014 we appointed Retired General C. Robert
Kehler and in 2015 we have appointed Robert Ruijter and Dr Hamadoun Touré. At
the beginning of 2015, I also became Non-Executive Chairman. We also welcomed
Tony Bates as our Chief Financial Officer in June 2014. I have detailed later on in
the report some changes in one of our Board Committees.
ANDREW SUKAWATY
CHAIRMAN
As at 5 March 2015, the composition of the Board is two Executive Directors,
10 Non-Executive Directors and a Non-Executive Chairman. With the exception
of Mr Bates and General Kehler, all Directors (apart from those joining in 2015)
served throughout the year.
CHAIRMAN’S INTRODUCTION
The names of the Directors on our Board, their relevant skills and experience
are set out in their biographical details and can be found on pages 50 to 52.
Your Board manages the Inmarsat business in a transparent, open and
honest manner. We achieve this by maintaining high standards of corporate
governance. The Board is ultimately responsible to shareholders for all our
activities: for delivering our strategy and financial performance, for efficiently
using our resources and for social, environmental and ethical matters.
The composition of the Board and its various Committees is regularly reviewed
and evaluated so as to reflect the balance of skills, knowledge, diversity (of which
gender is one component), experience and the ability of Directors to provide
sufficient time to fulfil their Board responsibilities.
The Board approves the Group’s governance framework with the Board
committees contributing their specialist focus to key areas such as remuneration
policy, internal controls and risk management.
Our governance framework includes the changes introduced by the updated
UK Corporate Governance Code (the ‘Code’), the Large and Medium-sized
Companies and Groups (Accounts and Report) (Amendment) Regulations
2013 (the ‘Regulations’).
We also include a statement made by the Directors, on page 83, that
they consider the Annual Report, taken as a whole, to be fair, balanced and
understandable. The processes including financial controls and reporting, and
risk management, which underpin and support our confidence in making this
statement, are long-established and embedded into our business. In addition,
our Internal Audit Department reviewed the narrative sections of the Annual
Report. In line with its terms of reference, a subset of the Disclosure Committee
also reviews the Annual Report to ensure it contains all necessary disclosures to
fairly present the Company’s and the Group’s financial condition and results of
operations. Our external auditors review the narrative sections of the Annual
Report to identify any material inconsistencies with the financial statements.
Our Board members receive drafts of the Annual Report in sufficient time to
facilitate their review and input.
As Chairman I am able to call on a broad and diverse range of skills and
experience from all my Directors; the blend of experience, nationalities and range
of cultural experience within the Board is valuable to us as we fulfil our duties to
manage the business.
The information on the following pages will help you understand how your Board
has run the Company, managed risks, monitored control, and how decisions have
been taken.
ANDREW SUKAWATY
CHAIRMAN
5 March 2015
In succession planning for the Board and within the Group, the Board takes
into account the need for diversity generally, and is in support of the principle
of encouraging women in the Company as noted in its existing policy. The Board
has not set express diversity quotas or measurable objectives for implementing
its policy. Although there is no specific percentage commitment for women on
the Board or in senior manager roles, it is the Board and management’s intention
that female talent, as one element of diversity, is encouraged within the business.
The Board is diverse in terms of the range of nationality and international
experience of its members. The Board currently has two female Non-Executive
Directors, representing, as a percentage, 15% of the full Board as at 5 March
2015; this figure is reduced compared to the percentage in 2014 which was 22%
because of the increase in board size while we go through a transition period of
bringing on new Directors and the retirement of existing ones. Across our business
of approximately 1,600 employees, female employees represent approximately
30%, with 25% presence on the Executive Management Board and 18% on the
wider leadership team (excluding contingency workers) which is a group comprising
generally direct reports to the Executive Management Board members. The
percentage of females on the Executive Management Board and wider leadership
team represent the definition as set out in the UK Government BIS requirements.
HOW THE BOARD OPERATES
To ensure effective corporate governance, your Board has structured its
governance framework as set out below.
The Board has established Committees to assist it in exercising its authority.
The permanent Committees of the Board are the Audit, Remuneration and
Nominations Committees. Each Committee has Terms of Reference under which
authority is delegated by the Board. A copy can be found on our website at
www.inmarsat.com. Reports of the Committees can be found on pages 62
to 82.
STRATEGIC REPORT
GOVERNANCE
57
BOARD COMMITTEES
CHAIRMAN
ANDREW SUKAWATY
Key objectives:
> Leadership, operation and governance of the Board
> Setting the agenda for the Board
INMARSAT PLC BOARD
13 DIRECTORS: THE CHAIRMAN, TEN INDEPENDENT NON-EXECUTIVE DIRECTORS
AND TWO EXECUTIVE DIRECTORS
Key objectives:
> Responsible for the overall conduct of the business
> Setting strategy
AUDIT COMMITTEE
5 INDEPENDENT NONEXECUTIVE DIRECTORS
REMUNERATION COMMITTEE
NOMINATIONS COMMITTEE
AND CHAIRMAN
JOHN RENNOCKS
AS CHAIRMAN
STEPHEN DAVIDSON
AS CHAIRMAN
Key objectives:
> Oversight and review of
financial risk management,
audit and internal
control issues
Key objectives:
> Oversight and review of
remuneration, bonus and
share plan issues
Key objectives:
> Oversight and review
of Board and senior
management appointments
and succession planning
Read more on page 62
CHIEF EXECUTIVE
RUPERT PEARCE
ANDREW SUKAWATY
AS CHAIRMAN
Key objectives:
> Management of the business
> Implementation of strategy
and policy
12 MEMBERS MADE UP OF THE EXECUTIVE DIRECTORS,
BUSINESS UNIT PRESIDENTS, GROUP FUNCTION HEADS.
CHAIRMAN: RUPERT PEARCE
Key objectives:
> To focus on strategy, financial performance, succession planning,
business growth, organisational development and support of
group-wide policies
58
CORPORATE GOVERNANCE CONTINUED
ROLE OF THE BOARD
Our Board is responsible for the overall conduct of the Inmarsat Group’s (the ‘Group’)
business. It is the primary decision-making body for all material matters affecting
the Group. It provides leadership and guidance, and sets our strategic direction.
Our Board is ultimately accountable to the shareholders for:
> the performance and proper conduct of the business;
> being responsible for the long-term success of the Company, having regard
for the interests of all stakeholders; and
> being responsible for ensuring the effectiveness and reporting on our system
of corporate governance.
Responsibility for implementing strategy within the Group’s operations and for
day-to-day management of the business is delegated to the Chief Executive
Officer who, as part of the Executive Management Board team, cascades this
responsibility through the Group. A list of team members is provided on page 17.
A formal schedule of matters specifically reserved for decision or consideration
by the Board as a whole has been agreed by the Directors. This schedule covers
areas such as:
> the Group’s business strategy and long-term plans;
> major capital projects;
> investments; and
> acquisitions and divestments.
The Board has an annual rolling plan of items for discussion which is reviewed
formally at Board meetings and adapted regularly to ensure all matters reserved
to the Board, with other items as appropriate, are discussed. There is an established
procedure for the review of the agenda in advance of each Board or Committee
meeting. At each Board meeting there is a detailed report on current trading from
the Chief Executive and Chief Financial Officer and full papers are provided on
matters where the Board will be required to make a decision or give approval.
Where appropriate, specific responsibilities are delegated to Board Committees
or to committees convened for special purposes.
Specific annual items for review include an update on the Company’s policies
for compliance with the Bribery Act, and the US Foreign and Corrupt Practices
Act (‘FCPA’) requirements and health and safety. As part of our commitment to
preventing bribery and establishing a culture that does not tolerate corruption
wherever and in whatever form it may be encountered, we have a formal
Board-approved anti-corruption policy, which was updated as part of good
practice in 2014. We have appropriate procedures in place, in line with guidance
provided by the Ministry of Justice to ensure compliance with current legislation.
A summary of our anti-bribery policy is included on our website.
INDEMNIFICATION OF DIRECTORS
Directors’ and Officers’ insurance cover has been established for all Directors
and Officers to provide cover against their reasonable actions on behalf of
the Company. In accordance with our articles of association and to the extent
permitted by the laws of England and Wales, Directors, the Company Secretary and
certain employees who serve as directors of subsidiaries at the Group’s request
have been granted indemnities from the Company in respect of liabilities incurred
as a result of their office. Neither our indemnity nor the insurance provides cover
in the event that a Director is proven to have acted dishonestly or fraudulently.
No amount has been paid under any of these indemnities during the year.
CONFLICTS OF INTEREST
The Company has in place procedures for managing conflicts of interest
and is aware of any potential conflict through an annual review of the other
commitments of its Directors. We are satisfied these do not conflict with their
duties as Directors of Inmarsat and consequently there were no conflicts of
interest identified during the year. The Company’s articles of association contain
provisions to allow the Directors to authorise potential conflicts of interest so
that a Director is not in breach of his/her duty under company law. Should a
Director become aware that they have an interest, directly or indirectly, in an
existing or proposed transaction with the Company, they are required to notify
this to the Company Secretary. Directors have a continuing duty to notify
any changes to their conflicts of interest to the Company Secretary and any
changes are noted in the conflicts register.
KEY ROLES AND RESPONSIBILITIES
CHAIRMAN
ANDREW SUKAWATY
The role of the Chairman is set out in writing and agreed by the Board.
He is responsible for:
> effective leadership, operation and governance of the Board;
> ensuring the effectiveness of the Board;
> setting the agenda, style and tone of Board discussions; and
> ensuring Directors receive accurate, timely and clear information.
In addition Mr Sukawaty also fulfils other responsibilities including:
> fulfilling a company representative role with various international
organisations and also with government departments
for market access opportunities in key BRIC countries.
RUPERT PEARCE
The role of the Chief Executive is set out in writing and agreed by the Board.
He is responsible for:
> the day-to-day management of Inmarsat’s operations and its
financial results;
> recommending the strategic objectives for the Inmarsat Group,
for debate, challenge and approval by the Board;
> responsibility for ensuring we meet the milestones for our key
programmes with a priority to target revenue growth and deliver
enhanced returns to shareholders; and
> chairing the Executive Management Board.
Mr Pearce is the Board sponsor for environmental and social governance,
community investment, and other corporate social responsibility matters.
SENIOR INDEPENDENT DIRECTOR
JOHN RENNOCKS
The Senior Independent Director is responsible for:
> acting as a sounding board for the Chairman;
> serving as an intermediary for the other Directors;
> reviewing the Chairman’s performance with the Non-Executive Directors;
> being available to discuss issues or concerns from our shareholders where
they have been unable to resolve them through existing channels for
investor communications; and
> convening regular meetings of the Non-Executive Directors.
Mr Rennocks also acts as Deputy Chairman.
COMPANY SECRETARY
ALISON HORROCKS
The Company Secretary acts as Secretary to the Board and its Committees
and in doing so she:
> assists the Chairman in ensuring that all Directors have full and timely
access to all relevant information;
> assists the Chairman by organising induction and training programmes;
> assists the Chairman with the annual Board evaluation procedure;
> is responsible for ensuring that the correct Board procedures are followed
and advises the Board on corporate governance matters; and
> administers the procedure under which Directors can, where appropriate,
obtain independent professional advice at the Company’s expense (no
requests for external professional advice were received during the year).
STRATEGIC REPORT
GOVERNANCE
INDEPENDENT NON-EXECUTIVE DIRECTORS
The diverse experience and backgrounds of the Non-Executive Directors ensures
that they can provide a strong independent element on the Board, to debate,
and constructively challenge management both in relation to the development
of strategy and review of the Group’s operational and financial performance.
To determine their independence, all Non-Executive Directors are reviewed
by the Board annually against any circumstances relevant to their current or
ongoing independence as set out in the Code. Following such review, the Board
considers all the Non-Executive Directors to be independent and free of any
circumstances that could materially interfere with their ability to provide a strong
and valuable contribution to the Board’s deliberations, or which could interfere
with the individual Director’s ability to also act in the best interests of the Group.
At the 2015 AGM, several of our Directors will have served for 10 years. The Board
has considered the matter carefully and believes that these Non-Executive
Directors continue to demonstrate the qualities of independence and judgement
in carrying out their roles. Their length of service, resulting experience and
knowledge of the Company is of great benefit to the Board and these three
Directors – Messrs Rennocks and Davidson and Sir Bryan Carsberg – will all stand
for re-election at the 2015 AGM. The subject of their independence will be kept
under review.
It is the intention that after the 2015 AGM, Simon Bax will be appointed as
Chairman of the Remuneration Committee with Stephen Davidson stepping
down from the Chairman role but remaining a member of the Committee and a
Director of the Company. We expect that our newer Non-Executive Directors will
have been able to benefit from the experience of our longer-serving Directors
through the phased retirement plans we will be putting in place.
The Chief Executive chairs the Executive Management Board which meets on
a weekly basis. As part of its remit, this team focuses on the Company’s strategy,
financial reviews and long range business planning, the competitive landscape,
operational updates from all areas of the business, risk review and organisational
development. The Executive Management Board includes the Executive
Directors, the Business Unit Presidents and the key functional heads.
The names of the management team are shown on page 17.
GOVERNANCE AND CONDUCT OF BOARD MEETINGS
Our Board meets as often as necessary to effectively conduct its business.
During the year, the Board met eight times, with one of those meetings being
held in Washington DC. The first meeting in 2015 was held in the office of a
business in the US which had been acquired in January 2014 and provided the
Board with additional exposure to this part of our business. The rest of the
meetings in 2014 were held in the UK. Key management are invited to attend
all Board meetings to present on specific business issues which will include
operations update for each of the Business Units and central services
divisions which will focus on commercial, technology and operational matters.
Unscheduled supplementary meetings also take place as and when necessary.
In instances where a Director is unable to attend Board or Committee meetings,
any comments which he or she may have arising out of the papers to be
considered at the meeting are relayed in advance to the relevant Chairman or the
Company Secretary who would then report to the Board or Committee thereon.
59
The use of the electronic portal for the Directors to access Board and Committee
papers has proved very effective. At each meeting, the Chief Executive Officer and
Chief Financial Officer provide reports to the Board and several senior executives,
by invitation, present updates on strategy and focus on specific parts of the Group’s
operations. This way the Board is given exposure to the next layer of management
at the Executive Management Board level and often from their direct reports. This
is helpful to the Board as it supplements the discussions it has regarding planning
for management succession. All Committee Chairmen report verbally on the
proceedings of their Committees at the next Board meeting. Meeting proceedings
and any unresolved concerns expressed by any Director are minuted by the
Company Secretary.
The Non-Executive Directors meet annually and on an ad-hoc basis, without the
Chairman and other Executive Directors in attendance, to assess the Chairman’s
performance, discuss Board balance, monitor the powers of individual Executive
Directors and raise any issues between themselves as appropriate.
As part of its regular Board meeting schedule, the Board also holds a two-day
strategy meeting each year at which it considers the future direction of the
business. Strategy sessions are attended by several senior executives who
present on specific agenda items. Elements of the business strategy are
reviewed regularly at Board meetings.
The Company recognises the importance of electronic information, systems and
network security (‘cyber security’). We are increasingly required to be compliant
with, or align to, various legal, contractual and regulatory standards and codes
of practice relative to information security governance and the preservation of
the confidentiality, integrity and availability of customer or internal data and
services. To ensure we can meet these business and geopolitical requirements,
a multi-standards compliance programme is underway ensuring compliance with,
among others, UK, US and international cyber security standards that include
ISO27001/2, NIST-800-53 and PCI-DSS. This is part of a broader programme
supported by a dedicated cyber security team whose primary role is to safeguard
the Company to meet its legal and regulatory obligations, maintain business
continuity and limit damage to business interests by preventing and reducing
the occurrence of security incidents and their impact upon business operations.
BOARD MEETING ATTENDANCE
The attendance of the Directors at the Board meetings held in 2014 is shown
in the table below. Robert Ruijter and Dr Hamadoun Touré joined the Board on
1 February and 1 March 2015 respectively. Attendance at Committee meetings
is shown in the relevant Committee reports.
Number of scheduled Board meetings held and meeting
attendance in 2014
Andrew Sukawaty (Chairman)
Rupert Pearce
Tony Bates(a)
Simon Bax
Sir Bryan Carsberg
Stephen Davidson
Admiral James Ellis Jr (Rtd)(b)
Kathleen Flaherty
General C. Robert Kehler (Rtd)(c)
Janice Obuchowski
Abe Peled
John Rennocks
(a) Appointed on 2 June 2014
(b) Resigned on 4 March 2014
(c) Appointed on 6 May 2014
Meetings
Percentage
Attendance
8/8
8/8
5/5
8/8
8/8
8/8
2/2
8/8
6/6
8/8
8/8
8/8
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
60
INDUCTION AND ON-GOING PROFESSIONAL DEVELOPMENT
To ensure that each Director receives appropriate support on joining the
Board, they are given a comprehensive, formal and tailored induction
programme organised through the Company Secretary, including the provision
of background material on the Company and briefings with each of the Executive
Management Board. These meetings will ensure that the on-boarding process
for a new Director provides a view of each area of the business with the
opportunity for further discussion as appropriate. Each Director’s individual
experience and background is taken into account in developing a programme
tailored to his or her own requirements. The induction programme was reviewed
and updated during 2014 for General Kehler when he joined the Company.
The elements of induction will also be reviewed to cater to the requirements
of the two Non-Executive Directors who joined the Board in 2015.
For professional ongoing development, the Board receives presentations
relevant to the Company’s business and updates on any changes in legislation
which may affect the Company’s operations. The Company Secretary supplies
all Directors with information on relevant legal and best practice. As part of their
annual performance evaluation, Directors are given the opportunity to discuss
training and development needs. Directors are expected to take responsibility for
identifying their training needs and to take steps to ensure they are adequately
informed about the Company and their responsibilities as a Director. The Board
is confident that its members have the knowledge, ability and experience to
perform the functions required of a Director of a listed company.
BOARD EFFECTIVENESS
As in 2013, for 2014, the Board undertook a formal evaluation of its own
performance and that of its Committees and individual Directors during the
year, led by the Company Secretary. The Code requires that the Company
conduct an externally facilitated evaluation every three years and the 2012
Board performance evaluation was facilitated by Duncan Reed of Condign Board
Consulting Ltd. An evaluation by an external provider will be undertaken in 2015.
The evaluation process consisted of a questionnaire sent out in advance to
each Director and a meeting occurred between the Company Secretary and
each Non-Executive Director to review the questionnaire and discuss any other
comments. The outcome of the review was first discussed with the Chairman
and then shared with the full Board as an agenda item at the Board meetings
in March 2015. The full output from the evaluation was presented in a report
to all of the Directors, with collective and individual feedback being provided.
The review concluded that Board meetings had good debate and discussion
with the right level of question and debate leading up to a decision being made.
The Directors all felt that the Non-Executive Directors who had joined in 2013
and part-way through 2014 had settled well and were contributing effectively
to Board discussion. There was strong endorsement of the new CFO and
appreciation of the experience and knowledge he was bringing to managing
the finance function, proposing and adopting new financial reporting and his
contribution to streamlining processes across different business areas. The Board
confirmed its full support for the transition of Mr Sukawaty from Executive
Chairman to Non-Executive Chairman and continued to applaud his style and
approach for how he facilitated a culture of openness, honesty and collegiality.
The relationship between the Chairman and CEO was also noted as being very
effective and supportive of their respective roles to ensure the best outcome for
the business was always forefront of decision making. Continuing to engage with
senior management in a formal Board meeting setting as well as informally outside
the Board meetings was felt to be of benefit supporting succession discussions.
The Non-Executive Directors continue to be highly supportive of all the Executive
management team.
The Board was asked specifically to consider how they felt they had contributed
as individuals during the year as well as to identify key areas where the Board had
been a significant driver in the decision-making process. They cited a number of
examples such as the support for the aviation business expansion.
During the year, the Senior Independent Chairman met with the Non-Executive
Directors and discussed the performance of the Chairman; and each of the
directors commented as part of the evaluation exercise on the Chairman’s
performance. The Chairman meets the Non-Executive Directors on an
individual basis at least once a year.
Key elements arising from the 2014 Board evaluation review are as follows:
> Additional focus on succession planning for Executive Directors and
senior management;
> Broaden the strategy discussion content for the two-day Board meeting
and include additional targeted strategic discussion at Board meetings
as appropriate;
> Greater visibility as to customer satisfaction and how it is measured; and
> Plan for a retirement cycle for longer-serving Non-Executive Directors.
EXTERNAL DIRECTORSHIPS
The Board believes, in principle, in the benefit of Executive Directors accepting
Non-Executive Directorships of other companies in order to widen their skills and
knowledge for the benefit of the Company. All such appointments require the prior
approval of the Board and the number of appointments is limited to two. Details
of these directorships can be found in their biographies on page 51 and details
of the fees paid to them can be found on page 77 of the Remuneration Report.
APPOINTMENT AND REAPPOINTMENT
The Directors may appoint additional members to join the Board during the year.
Directors appointed in this way will, upon the recommendation of the Board, offer
themselves for election by shareholders at the first AGM after their appointment.
The reappointment of Directors is subject to their ongoing commitment to Board
activities and satisfactory performance. All Directors will stand for reappointment
annually in accordance with the provision of the Code. The Nominations
Committee confirmed to the Board that the contributions made by the Directors
offering themselves for reappointment at the 2015 AGM continues to benefit the
Board and the Company should support their reappointment. Non-Executive
Directors are appointed initially for three years and all Non-Executive Directors
may not, unless agreed by the Board, remain in office for a period longer than six
years, or two terms in office, whichever is the shorter.
As already set out earlier in this report on page 59, three of our Non-Executive
Directors, John Rennocks, Stephen Davidson and Sir Bryan Carsberg, are being
supported by the Board for re-appointment as independent Non-Executive
Directors even though they will have served for 10 years. We will also be putting
forward for election at the 2015 AGM three additional Non-Executive Directors:
General C. Robert Kehler (Rtd), Robert Ruijter and Dr Hamadoun Touré, and Tony
Bates as an Executive Director.
As advised in our 2013 Annual Report, Mr Bates joined the Company and was
appointed as a Director and our CFO on 2 June 2014. The appointment followed
an external search undertaken by Russell Reynolds Associates, which was led by
the CEO reporting to the Chairman of the Nominations Committee.
DIRECTORS’ REMUNERATION
Details of the Company’s remuneration policy and Directors’ remuneration are
contained in the Directors’ Remuneration Report on pages 66 to 82.
STRATEGIC REPORT
GOVERNANCE
RELATIONS WITH SHAREHOLDERS
The Company recognises the importance of communicating with its shareholders
to ensure that its strategy and performance are understood and that it remains
accountable to shareholders. The Board as a whole is responsible for ensuring
that a satisfactory dialogue with shareholders takes place, whilst the Chief
Executive Officer and Chief Financial Officer ensure that the views of shareholders
are communicated to the Board as a whole. The Board ensures that the
Company’s strategic plans have been carefully reviewed in terms of their ability
to deliver long-term shareholder value. In September 2014, the Company held
an Investor Day which was attended by investors, bankers, and other interested
parties. The presentations covered the Company’s major business opportunities
with presentations from each of the key business areas. Positive feedback as to
the content and provision of information was received; a copy of the presentation
has been made available on the Company’s website. This audited 2014 Annual
Report will be made available to shareholders and all results are posted on the
Company’s website, as are presentations made in respect of the full-year results.
The Company has undertaken regular investor roadshows in the UK and
overseas and presentations were also made after publication of the Preliminary
Results in March 2014 and are planned for March 2015. Investor and analyst
conference calls took place after the announcement of each set of quarterly
financial results. There is an ongoing programme of dialogue and meetings
between the Executive Directors and institutional investors, fund managers and
analysts. At these meetings, a wide range of relevant issues including strategy,
performance, management and governance, are discussed within the constraints
of information which has already been made public. The Board is aware that
institutional shareholders may be in more regular contact with the Company
than other shareholders, but care is exercised to ensure that any price-sensitive
information is released to all shareholders, institutional and private, at the
same time in accordance with the Financial Conduct Authority requirements.
The Chairman, Andrew Sukawaty, and Senior Independent Director, John
Rennocks, are available to shareholders if they have concerns which cannot be
raised through the normal channels or if such concerns have not been resolved.
Arrangements can be made to meet with either of them through the Company
Secretary. Other Non-Executive Directors may be asked to participate in
investor meetings and have done so.
During 2014, there continued to be ongoing communications through a
combination of face-to-face meetings, phone calls and email correspondence
with many investors regarding remuneration issues. The Remuneration
Committee Chairman shared a forward vision of the key elements of the 2014
Remuneration Policy with many of the Company’s significant and influential
shareholders, as well as several proxy agencies. The Company also sought
comments on the proposed change in position of the Chairman, moving from
an Executive to Non-Executive position and received positive feedback which
was relayed to the Board at its September Board meeting to allow the Board
to take a decision to recommend the change in Chairman position which was
then announced to the London Stock Exchange. Further information on the
Company‘s Remuneration Policy is contained in the covering letter from the
Remuneration Committee Chairman, in the Remuneration Policy and Annual
Report on Remuneration on pages 66 to 82.
The Board obtains feedback from its joint corporate brokers, J.P. Morgan
Cazenove and Credit Suisse, on the views of institutional investors on a
non-attributed and attributed basis. Any concerns of major shareholders would
be communicated to the Board by the Executive Directors. As a matter of
routine, the Board receives regular reports on issues relating to share price and
trading activity, and details of movements in institutional investor shareholdings.
The Board is also regularly provided with current analyst opinions and forecasts.
61
ANNUAL GENERAL MEETING
Shareholders are welcome at the Company’s AGM where they will have an
opportunity to meet the Board. The notice of the AGM is sent to all shareholders
at least 20 working days before the meeting. The Chairmen of the Audit and the
Remuneration Committees, together with as many Directors as possible, will
attend the 2015 AGM and be available to answer shareholders’ questions. Voting
on all resolutions at the AGM is on a poll. The proxy votes cast, including details
of votes withheld, are disclosed on our website and announced to the UK Listing
Authority through a Regulatory Information Service immediately after the
meeting. Facilities are provided for shareholders to vote electronically either
through Electronic Proxy Voting or through CREST.
INTERNAL CONTROLS
The Board acknowledges its responsibility for establishing and maintaining
the Group’s system of internal controls and it receives regular reports from
management identifying, evaluating and managing the risks within the business.
The system of internal controls is designed to manage, rather than eliminate,
the risk of failure to achieve business objectives and can provide only reasonable
and not absolute assurance against material misstatement or loss. The Audit
Committee reviews the system of internal controls through reports received
from management, along with those from both internal and external auditors.
Management continues to focus on how internal control and risk management
can be further embedded into the operations of the business and to deal with
areas of improvement which come to management’s and the Board’s attention.
The Company has an established Disclosure Committee with responsibility for
reviewing and approving controls and procedures over the public disclosure of
financial and related information and other procedures necessary to enable the
Chairman, Chief Executive Officer and the Chief Financial Officer to provide their
certifications in relation to publicly disclosed information.
The Board and the Audit Committee have carried out a review of the
effectiveness of the system of internal controls during the year ended
31 December 2014 and for the period up to the date of approval of the
consolidated financial statements contained in the Annual Report. The review
covered all material controls, including financial, operational and compliance
controls and risk management systems. The Board confirms that the actions
it considers necessary have been, or are being taken to remedy any significant
failings or weaknesses identified from its review of the system of internal control.
This has involved considering the matters reported to it and developing plans
and programmes that it considers are reasonable in the circumstances. The
Board also confirms that it has not been advised of material weaknesses in
the part of the internal control system that relates to financial reporting.
The key elements of the Group’s system of internal controls, which have been in
place throughout the year under review and up to the date of this report, include:
> Risk management: an overarching risk management policy is in place which
sets out the tolerance for risk within the Group and how this is measured
across identified macro and business risks. As required by the policy,
management operates a risk management process to identify, evaluate
and report significant risks within the business and to report to the Board
on how those risks are being managed. Risks are highlighted through a
number of different reviews and culminate in a risk register, monitored by
Risk Committees across the Group, which identify the risk area, the probability
of the risk occurring, the impact if it does occur and the actions being taken
to manage the risk to the desired level. All the risk registers are reviewed by
senior management and provided quarterly to the Board and to the Audit
Committee. Details of the risk process and key risks are shown on pages 26
to 28 in the Strategic Report.
62
> Management structure: there is a clearly defined organisational structure
throughout the Group with established lines of reporting and delegation of
authority based on job responsibilities and experience. Within the businesses,
senior management meetings occur regularly to allow prompt discussion of
relevant business issues. A process of self-certification is used where Directors
and senior managers are required to detail and certify controls in operation
to mitigate risk in key process areas. The Directors also review and approve
annually, that risk management processes are in place.
> Financial reporting: monthly management accounts provide relevant, reliable
and up-to-date financial and non-financial information to management and
the Board. Analysis is undertaken of differences between actual results and the
annual budget on a monthly basis. Annual plans, forecasts, performance targets
and long range financial plans allow management to monitor the key business
and financial activities, and the progress towards achieving the financial
objectives. The annual budget is approved by the Board. The Group reports
quarterly based on a standardised reporting process.
> Information systems: information systems are developed to support the
Group’s long-term objectives and are managed by professionally staffed
teams. Appropriate policies and procedures are in place covering all
significant areas of the business.
> Contractual commitments: there are clearly defined policies and
procedures for entering into contractual commitments. These include
detailed requirements that must be completed prior to submitting proposals
and/or tenders for work, both in respect of the commercial, control and risk
management aspects of the obligations being entered into. New business
plan approval processes and a new procurement process have been
introduced which will further strengthen the review of contractual
commitments before any such commitment is agreed to.
> Monitoring of controls: the Audit Committee receives regular reports from
the internal and external auditors and assures itself that the internal control
environment of the Group is operating effectively. There are formal
policies and procedures in place to ensure the integrity and accuracy of the
accounting records and to safeguard the Group’s assets. Significant capital
projects and acquisitions and disposals require Board approval. There are
formal procedures by which staff can, in confidence, raise concerns about
possible improprieties in financial and pensions administration and other
matters – often referred to as ‘whistleblowing’ procedures. A new worldwide
anonymous whistleblowing programme was introduced in 2014. Arrangements
are in place for proportionate and independent investigation and appropriate
follow-up action with the results being reported to the Audit Committee.
OVERALL SUMMARY STATEMENT ON CORPORATE GOVERNANCE
The Company is committed to the highest standards of corporate governance.
The Directors consider that the Company has, throughout the year, complied
with the provisions of the Code as currently in effect save as noted below.
During 2014, Mr Sukawaty was Executive Chairman. He did not meet the
independence criteria on appointment. He was appointed Chairman in December
2003 and assumed the additional role of Chief Executive Officer at the Board’s
request in March 2004. On 1 January 2012, the roles were split and Mr Sukawaty
continued as Executive Chairman. From 1 January 2015, Mr Sukawaty became
Non-Executive Chairman. He is not considered independent. Although the Code
recommends that the Chairman is independent on appointment, the Board
unanimously believes that Mr Sukawaty’s wide experience means that he remains
extremely well qualified to lead the Company as its Chairman and has the skills
and experience to ensure that the Board continues to function effectively. The
Senior Independent Director, John Rennocks, plays a key role within the Company
on any matters which may be raised of a governance nature and was responsible
for the discussions regarding the change in role for the Chairman which became
effective in 2015.
RISK MANAGEMENT PROCESS
An overview of the Group’s framework for identifying and managing risk,
both at an operational and strategic level, is set out on pages 26 to 28
in the Strategic Report.
REPORTS OF THE BOARD COMMITTEES
REPORT OF THE AUDIT COMMITTEE
All members of the Audit Committee are independent Non-Executive Directors
and the majority have significant, recent and relevant financial experience.
The Board is confident that the collective experience of the Audit Committee
members enables them, as a group, to act as an effective Committee.
The table below shows who makes up the Audit Committee and their attendance
at meetings during 2014. Robert Ruijter joined the Committee with effect from
1 February 2015.
Name
Audit Committee
Percentage
attendance
4/4
4/4
4/4
4/4
100%
100%
100%
100%
John Rennocks (Chairman)
Sir Bryan Carsberg
Stephen Davidson
Janice Obuchowski
By invitation, the meetings of the Audit Committee may be attended by the
Chairman, Chief Executive Officer, Chief Financial Officer and the Head of Internal
Audit. The Deloitte LLP (‘Deloitte’) audit engagement partner is present at all
Audit Committee meetings to ensure full communication of matters relating
to the audit. The Chairman of the Audit Committee meets regularly with the
internal and external auditors.
AUDIT COMMITTEE RESPONSIBILITIES
The Audit Committee has particular responsibility for:
> monitoring the financial reporting process;
> the adequacy and effectiveness of the operation of internal controls
and risk management;
> the integrity of the financial statements. This includes a review
of significant issues and judgements, policies, and disclosures;
> keeping under review the scope and results of the audit and its
cost effectiveness;
> consideration of management’s response to any major external
or internal audit recommendations; and
> being assured of the independence and objectivity of the internal
and external auditor.
Following publication of the revised version of the Code, which applies to financial
years commencing on or after 1 October 2012, the Board requested that the
Committee advise whether it believes the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s performance, business
model and strategy. The Committee’s terms of reference have been amended to
reflect this, and have been generally updated to reflect best practice, and can be
found on our website.
There is a forward agenda used for the year’s activities which focuses on:
> review of the annual financial statements and the results of the annual
external audit and review of the external auditor’s quarterly and interim
review work and relevant quarterly and interim financial reporting and the
external audit plan;
> review of risk management reports; and
> review of internal audit plans and findings and recommendations.
STRATEGIC REPORT
GOVERNANCE
The Audit Committee ensures that the external audit process and audit quality
are effective. It does this by relying on:
> the engagement between the Audit Committee Chairman and the lead audit
engagement partner which will generally be through face to face meetings;
> the reports which are brought to the Committee by the lead audit
engagement partner and other senior members of the audit team;
> the quality of the management responses to audit queries;
> meetings held by the CEO and the Chairman with the lead audit engagement
partner which are reported to the Audit Chairman and Committee;
> a review of independence and objectivity of the audit firm and also the quality
of the formal audit report given by the Auditor to shareholders; and
> feedback from members of the finance team, the Company Secretary, and
the Head of Internal Audit. The Committee is considering the use of a formal
auditor assessment tool for future review of audit effectiveness.
During the year to 31 December 2014, the activities of the Audit Committee were:
> review and endorsement, prior to submission to the Board, of the half-year
and full-year financial statements, interim management statements and
results announcements;
> review and approval of internal audit reports , and findings and
recommendations arising from the reports;
> review and approval of risk management updates and the annual risk
management process;
> agreement of external and internal annual audit plans;
> receiving updates on management responses to audit recommendations; and
> reviewing accounting policies.
Reviews by the Committee of audit plans and risk reports include all Group
operations. Detailed risk reporting is used for all Group companies and business
operations. The quarterly review of the risk reports and the process adopted to
manage risk is a key area of focus for the Committee.
Audit Committee meetings generally take place just prior to a Board meeting
to maximise effectiveness and time planning efficiency of those attending. The
Committee’s Chairman reports to the Board as part of a separate agenda item,
on the activity of the Committee and matters of particular relevance to the
Board in the conduct of their work. All members of the Board have access to
Audit Committee papers and minutes of meetings, and may, on request to
the Chairman, attend the meetings.
The Company Secretary, as Chairman of the Disclosure Committee (the role of
which is detailed on page 61), reported on matters that affected the quality and
timely disclosure of financial and other material information to the Board, to the
public markets and to shareholders. This enabled the Audit Committee to review
and clarify the completeness of financial reporting disclosures prior to their
release by the Board.
63
Audit Committee – Significant accounting matters
During 2014, the Audit Committee considered the significant accounting matters
described below. In addressing these issues the Committee considered the
appropriateness of management’s judgements and estimates, and, where
appropriate, discussed these judgements and estimates with the external auditor.
The Committee also reviews quarterly reports by the external auditor which
highlight any issues with respect to the external auditor’s work undertaken.
> Segmental reporting
During 2014, the Group revised its operating segments to reflect the way the
business is being viewed by the CEO. The revised operating segments are now
aligned to five market-facing Business Units, being:
– Maritime
– Enterprise
– Aviation
– US Government
– Global Government
These five Business Units are supported by ‘Central Services’ which includes
satellite operations and backbone infrastructure, corporate administrative
costs, and all other income that is not directly attributable to the individual
Business Units. The Group has aggregated the US Government and Global
Government operating segments into one reporting segment, as the
segments meet the criteria for aggregation under IFRS. The Audit Committee
concur with the approach taken to identify and reorganise the Group’s
operating and reporting segments. The external auditors have examined
the design and implementation around segmental reporting and concur
it is in line with IFRS requirements.
> Goodwill and other impairment tests
The Group has significant goodwill and other intangible assets. As explained
in our accounting policy, intangible assets with an indefinite life are reviewed
annually for impairment and all intangible assets are reviewed for impairment
whenever there is an indication that those assets may be impaired.
The judgements in relation to impairment testing relate to the assumptions
used in calculating the value in use of the cash-generating units (‘CGUs’)
or assets being tested for impairment. The key assumptions applied in the
calculation relate to the future performance expectations of the business.
The starting point for the determination of the value in use workings is
the last Board-approved long-range business plan, which is updated for
changes since that date. The impairment review was also an area of focus
for the external auditor, who reported its findings to the Audit Committee.
In 2014 the Group reassessed its CGUs as a consequence of the Group’s
change in operating segments. Business Units rather than the previous
segmentation of Inmarsat Global and Inmarsat Solutions are now reported.
The Audit Committee believes the results of the impairment tests and the
revision to the CGU structure, to be appropriate.
> Pension arrangements and post-employment benefits assumptions
The assumptions used in valuing our pension and post-employment benefit
schemes are an area of key judgement. The valuation of all material pension
and post-employment benefit schemes is actuarially determined at year end;
the key assumptions are reviewed by the Audit Committee and have been
deemed appropriate.
64
> Income tax
The calculation of the Group’s potential income tax assets and liabilities
necessarily involves a degree of estimation and judgement in respect of
certain items, whose tax treatment cannot be fully determined until resolution
has been reached with the relevant tax authority, or, as appropriate, through
a formal legal process. Issues can, and often do, take a number of years
to resolve.
The Committee addresses these matters through a range of reporting from
senior management and a process of challenging the appropriateness of
management’s views including the degree to which these are supported by
professional advice from external legal and other advisory firms. This is also
an area of higher audit risk and accordingly the Committee received detailed
verbal and written reporting from the external auditor on these matters.
Following these procedures, the Audit Committee deemed the income tax
assets and liabilities balances for the year, as well as the Group’s contingent
liability disclosure in respect of income taxes, to be appropriate.
> Revenue in respect of the LightSquared Cooperation Agreement
The Audit Committee has reviewed the various accounting methods applied
for the recognition of revenue and costs in respect of the LightSquared
Cooperation Agreement. Both the percentage of completion and straightline method have been used to recognise revenue and costs relating to the
different phases of the Cooperation Agreement; the Audit Committee has
deemed the methods used appropriate.
> Provision for uncollectable trade receivables and for
inventory write-downs
As a result of uncertainties inherent in business activities, the Group estimates
its required provision for uncollectable trade receivables and for inventory
write-downs at the end of each period. The Audit Committee is satisfied
that the provision at the end of the year is based on management’s latest
available information and is therefore appropriate.
> Capitalisation of space segment assets and associated borrowing costs
Space segment assets comprise satellite construction, launch costs and
other associated costs, including ground infrastructure. In addition, borrowing
costs attributable to qualifying space segment assets are added to the cost
of those assets. Given the nature of the Group’s business, significant capital
expenditure is incurred on space segment assets. The key judgements
involved in the capitalisation of space segment assets and associated
borrowings costs are:
– whether the capitalisation criteria of the underlying IFRSs have been met;
– whether an asset is ready for use and as a result further capitalisation
of costs should cease and depreciation should commence; and
– whether an asset is deemed to be substantially complete and as a
result capitalisation of borrowing costs should cease.
The external auditor examined the capitalisation of development costs in
the year, particularly in relation to the Global Xpress and S-band satellite
programmes and reported its findings to the Audit Committee. The Audit
Committee is satisfied that space segment assets and associated borrowing
costs have been capitalised correctly in the year.
> Revenue recognition
A key area of judgement in respect of revenue recognition, especially in
the telecommunications industry, is in respect of the timing of recognition.
The Group’s internal audit team have kept revenue systems, processes
and recognition as a focus area during the year and the external auditor
performed detailed audit procedures on revenue recognition, with the
findings of both being reported to the Audit Committee. The Audit Committee
have therefore concluded that the Group’s revenue recognition policies
continue to be in line with IFRS requirements.
External auditor
Under the final Order issued by the Competition and Markets Authority, a FTSE
350 company is prohibited from appointing an auditor unless there has been
a competitive tender process in relation to one or more of the preceding nine
financial years or in relation to the next financial year. A competitive tender
process is a process where the Company invites and evaluates bids for the
provision of statutory audit services from two or more auditors. Under the
transitional provisions of the Order, given that our current Auditor was appointed
in 2006, we are required to undertake a competitive tender for the 2016 financial
year audit. Given their length of tenure, it is possible for the existing Auditor to be
reappointed as a result of the tender. With the additional EU directive and UK BIS
consultation, we expect that the requirement to have auditor rotation after
20 years will become effective and if the current Auditor was reappointed as
a result of the tender, it could not remain in place beyond 20 years from the
date of their appointment in 2006.
Auditor objectivity and independence is safeguarded through a variety of
mechanisms. To ensure the Auditor’s independence, the Committee annually
reviews the Company’s relationship with the Auditor and receives summaries
at each Audit Committee meeting as to its independence. The Committee
concluded that it continues to have an objective and professional relationship
with the Auditor and that there are sufficient controls and processes in place
to ensure the required level of independence. The external auditor is required
to rotate the audit partner responsible for the Group audit every five years.
The current audit partner was appointed in 2011 and the final audit he
will be responsible for is the 2015 financial year. For the year ending
31 December 2014, the Committee has provided to the Board its
recommendation to the shareholders on the reappointment of Deloitte
as the Group’s Auditor. During the year, the Auditor charged the Group
$1.6m (2013: $1.6m) for audit and audit-related services.
Non-audit services
The Company’s Auditor may also be used to provide specialist advice where,
as a result of their position as Auditor, they either must, or are best placed to,
perform the work in question. A formal policy is in place in relation to the provision
of non-audit services by the Auditor to ensure that there is adequate protection
of their independence and objectivity.
Fees charged by the Auditor in respect of non-audit services require the prior
approval of the Audit Committee, except where the Audit Committee has agreed
that the Company could commit to fees in relation to tax advisory and tax
compliance work from the Auditor of up to £50,000 for any one project, without
the need to seek approval for individual projects. Any commitments above this
amount will require Audit Committee Chairman approval. A summary is supplied
to the Audit Committee at each meeting where amounts have been committed
below £50,000. A breakdown of the fees paid to the Auditor during the year is
set out in note 6 to the Consolidated Financial Statements.
It is the Company’s practice that it will seek quotes from several firms, which may
include the Auditor, before work on non-audit projects is awarded. Contracts are
awarded to our suppliers based on individual merits. The Committee and the
Company’s management are aware that the level of fees paid to the Auditor for
non-audit services compared to audit services was significantly higher several
years ago due to work undertaken regarding specialist tax advice on certain
transactions and has worked to ensure that the non-audit fee levels have
reduced over the last few years. The Committee does not believe that asking the
Auditor to undertake non-audit work is an issue for the Company as it is satisfied
with the quality of work and advice provided and, importantly, it believes the
independence of the Auditor is not at risk. Additionally, where non-audit work is
undertaken management will have negotiated competitive rates for each
piece of work.
STRATEGIC REPORT
GOVERNANCE
We receive advice from other firms for specific projects and other long-term
projects. We have continued to use PwC, KPMG and EY for various projects –
some new projects and some have been continuing for several years. We also
use different firms to support us on VAT and ad hoc PAYE issues.
During the year, the Auditor charged the Group $1.0m (2013: $1.3m) for
non-audit related services.
Internal audit
Monitoring and review of the scope, extent and effectiveness of the activity of
the Internal Audit Department is an agenda item at each Committee meeting.
The Internal Auditor presents reports at each meeting covering updates on
internal audit activities, results of audits and follow-up actions required and
their annual audit plan. The Chairman of the Committee meets with the
Internal Auditor as required but generally at least once a year.
REPORT OF THE NOMINATIONS COMMITTEE
The Nominations Committee comprises a majority of independent NonExecutive Directors. The Nominations Committee meets as and when necessary,
generally at least once a year, and during the year was represented by Andrew
Sukawaty, its Chairman, Admiral James Ellis Jnr (Rtd), Stephen Davidson,
Dr Abe Peled and John Rennocks. Dr Hamadoun Touré joined the Committee
on 1 March 2015. During 2014 the Committee met five times.
The table below shows who makes up the Nominations Committee and their
attendance at meetings during 2014:
Name
Andrew Sukawaty (Chairman)
Stephen Davidson
Admiral James Ellis Jnr (Rtd)
Abe Peled
John Rennocks
Nominations
Committee
Percentage
attendance
5/5
5/5
1/2
5/5
5/5
100%
100%
50%
100%
100%
(1)
(1) For one meeting, Mr Sukawaty did not participate for the full meeting as a member
of the Committee as the business of the meeting related to his own position and a
possible transition to become Non-Executive Chairman.
The Committee has responsibility for nominating candidates for appointment as
Directors to the Board, bearing in mind the need for diversity (including gender)
consideration, and a broad representation of skills across the Board. In doing
this, the Committee will give full consideration to succession planning and the
leadership needs of the Company.
The Committee also makes recommendations to the Board on the composition
of the Board’s Committees and will review and make recommendations in relation
to the structure, size and composition of the Board including the diversity and
balance of skills, knowledge and experience, and the independence of the
Non-Executive Directors, including the tenure of each Director.
The Nominations Committee will also make recommendations to the Board
concerning the reappointment of any Non-Executive Director as he or she
reaches their sixth year of reappointment and separately with a view to assessing
their continuing independence thereafter, particularly when Directors are seeking
to be reappointed after serving nine or ten years. The Committee also reviews
and recommends the annual election and re-election of any Director by
shareholders and changes to senior management, including Executive Directors.
Appointments to the Board are made on merit, against objective criteria and
with due regard to the benefits of diversity on the Board. This process is led by
the Committee which, after evaluating the balance of skills, knowledge and
experience of each Director, makes recommendations to the Board.
65
In appointing Non-Executive Directors, the Board’s practice is to use a
combination of external recruitment consultants and personal referrals.
The three new Non-Executive Directors who were appointed in June 2014 and
February and March 2015 were personal recommendations from a Director or a
recommendation made to a Director. For the replacement of the Chief Financial
Officer position, the Company engaged Russell Reynolds Associates. Russell
Reynolds Associates has no other connection with the Company. Details of
the process adopted for the CFO appointment was described in our 2013
Annual Report.
In considering the skills required for new Non-Executive Directors, there was
specific focus on seeking an individual who had experience in senior ranking
positions within the US Government to replace the skill set and knowledge from
the Board upon the retirement of Admiral James Ellis Jnr (Rtd), and we felt that
General Kehler met all these requirements. The profile and experience of Robert
Ruijter as a qualified financial expert and his operational experience was an
excellent fit for coming onto the Board and becoming a member of the Audit
Committee as this Committee will have three Directors as its members who all
reach ten years’ service in 2015 and will retire in due course. Having Mr Ruijter join
the Committee and benefit from their experience will be very helpful to him and
the Company in the future. Dr Touré has deep experience within international
organisations handling regulatory issues and championing the cause of bringing
broadband communications to rural areas, particularly in Africa. Additionally, he
has industry experience having previously worked as a satellite engineer. Dr Touré
is a member of the Nominations Committee and we are creating a separate
Committee which will focus on regulatory activities where we will be able to draw
on his considerable recent experience to assist our awareness of regulatory
affairs. We had identified the desire to extend the mix of Directors from a cultural
and background point of view and we believe the two Directors who have joined
in 2015 fulfil these criteria. As part of the recruitment process, the individuals
generally met the Chairman of the Board, the CEO, the Chairmen of the Audit
and Remuneration Committees and the Company Secretary. Other members
of the Board were also given the opportunity to meet them.
All currently appointed Directors will retire at the 2015 AGM and offer themselves
for reappointment, or offer themselves for appointment as appropriate. As noted
earlier in the Corporate Governance Report, the Committee has agreed that it
was appropriate that although some Directors had exceeded their six-year term
of office, they remain independent in their contribution, and should be invited
to serve for a longer period and that the three Directors who will have served
ten years at the 2015 AGM remain independent. As detailed earlier in the
Corporate Governance Report on page 59, Stephen Davidson will step down as
Chairman of the Remuneration Committee after the 2015 AGM and will be
succeeded by Simon Bax. Mr Davidson will remain a member of the Committee
and a Director of the Company.
The Committee, when reviewing succession planning, considers diversity in its
broadest sense and takes this into account in its recommendations to the Board.
It takes into account the challenges and opportunities facing the Company;
diversity, including gender; and what skills and expertise are needed on the
Board and from senior management in the future. Gender is one element of the
considerations made in appointing senior management and Board members,
and as part of general recruitment practices across the Group. The Committee
gives full consideration to succession planning in the course of its work and
was pleased to note that with the recent senior management changes that
took place within the business it followed the recommendations set out in the
succession planning document. This document will be updated to reflect the
changes made and identify additional staff members who will form part of
the overall management succession planning.
66
REMUNERATION REPORT
Details of the changes to be operated in 2015 to the annual bonus plan and one
of the share plans, the Bonus Share Award, are covered on page 78 and for the
Performance Share Award, our LTIP, on pages 78 and 79.
I do though want to highlight in this letter information about the changes to the
performance metrics of the long-term share plan (the Performance Share
Award). During 2014 the Company continued to progress existing strategic
programmes such as:
> the launch and successful deployment of our Global Xpress
satellite programme;
> maximising revenue opportunities for our L-band services.
> becoming a major participant in the rapidly growing market for
aviation services
STEPHEN DAVIDSON
CHAIRMAN, REMUNERATION COMMITTEE
ANNUAL STATEMENT
Dear Shareholder
On behalf of the Board, I am pleased to present the Directors’ Remuneration
Report for the year ended 31 December 2014.
During 2014 we have taken major steps towards delivering transformational
growth opportunities for the Company. We have also delivered good financial
results and excellent returns for shareholders, TSR over the last two years has
exceeded 50%, and dividends increased by 5% and have increased every year
since our IPO in 2005.
This is our second year of reporting under the new regime where the report is
divided into two sections: our Remuneration Policy and an Annual Report on
Remuneration. We received a strong endorsement of both reports last year with
shareholders at the AGM supporting the Remuneration Policy Report with 97%
of votes in favour and the Annual Report on Remuneration receiving 98% of
votes. We have made some minor changes in the Remuneration Policy Report
which are highlighted on the next page and provided explanations regarding the
changes in the relevant section of the Reports.
I thought it would be helpful to shareholders if I focused on some of the changes
in relation to application of our policy as the Remuneration Committee feels they
warrant highlight.
The Committee has been closely involved in reviewing and improving the
annual bonus arrangements and the two executive share plans which operate.
The review has concentrated on:
> achieving a closer linkage between strategy, long-term shareholder value
and remuneration; and
> simplification of and closer alignment between corporate and
Business Unit plans.
There is more detail about these programmes in the strategy section of the
Annual Report on pages 22 and 23, and we believe they underpin long-term
shareholder value. Hence it is important to align part of the long-term share
plan for our Executive Directors with these same strategic goals. We have
communicated to our largest shareholders the rationale for the inclusion of
strategic objectives to be part of the long-term incentive award which will be
made shortly after the full year results are announced in March 2015. Those
strategic objectives will be one of three performance metrics; the other two
continue to be EBITDA growth and the use of relative TSR. Details of the
2015 award are shown on pages 78 and 79.
A Group-wide salary benchmarking review took place during 2014 with the
outcome that we awarded an average salary increase of just over 7% across the
Group, effective July 2014. This exercise has put us back on track for staff reviews
and gives us a sound base from which future increases can be made. As we have
highlighted in previous Remuneration Reports, our CEO, Rupert Pearce’s salary is
below the median of his benchmark and we have been moving him up gradually
to the appropriate level. He was therefore awarded a 15% salary rise in 2014
(following a freeze in 2013). We will review his salary in July 2015 and expect to
make an increase then. We also appointed a new CFO, Tony Bates, during this
year. Tony’s remuneration package was determined in line with the approved
Remuneration Policy and best practice, and is discussed in the Annual Report
on Remuneration on page 75.
2014 was the last year of executive service for Andy Sukawaty, as effective
1 January 2015, he became Inmarsat’s Non-Executive Chairman. Andy will receive
no new share plan awards but will benefit from plans vesting where he is already a
participant subject to performance conditions being met and time proportioned
according to plan rules.
I have been Chairman of the Committee since the Company listed in June 2005.
It has been a privilege to undertake this role and I’d like to thank our shareholders
whole heartedly for their engagement and support. I will step down as Chairman
after the AGM in May and Simon Bax who joined the Board in 2013 will take on the
responsibility. I will remain a Committee member. I wish Simon every success in
this new role.
A resolution to approve the Annual Report on Remuneration (which is subject
to an advisory vote) will be put to shareholders at the AGM in May.
STEPHEN DAVIDSON
5 March 2015
STRATEGIC REPORT
GOVERNANCE
67
DIRECTORS’ REMUNERATION POLICY
This section of the report sets out the Remuneration Policy for Executive Directors which shareholders approved at the 2014 AGM. The report below is as disclosed
in the 2013 Directors’ Remuneration Report save a number of minor changes as follows:
> References to financial years have been updated where appropriate;
> Share awards made after the 2014 AGM have been renamed Bonus Share Awards (BSA) and Performance Share Awards (PSA) following shareholder approval
of the Executive Share Plan (ESP) at the 2014 AGM;
> Minor revisions have been made to the performance metrics for BSA and PSA awards, and the annual bonus, from 2015 and details are shown on
pages 78 and 79;
> Pay-for-performance scenario charts have been updated to reflect 2015 salaries;
> New Non-Executive Director appointment expiry dates have been updated; and
> Details for the Executive Chairman role have been omitted in light of Mr Sukawaty’s move to a Non-Executive Chairman role effective 1 January 2015.
The Group’s Remuneration Policy is designed to deliver rewards that enable it to attract, retain and motivate talent of the highest appropriate quality, linking rewards
to the achievement of financial and strategic goals of the Group. When determining Remuneration Policy, we take into account all factors which we deem necessary,
including the Group’s overall business strategy, business performance in the current year and expectations for future years as incorporated into our Long Range
Business Plan (LRBP), pay arrangements in the wider Inmarsat workforce, and the global economic situation. Where appropriate, we will consult with shareholders in
advance of major changes in the Remuneration Policy or where we consider there are material changes to individual remuneration arrangements. The Committee is
committed to the principle that the Company should pay at the appropriate level to recruit and retain executives, and incentivise them to achieve the Company’s
objectives which will create value for shareholders.
Component
How does this link to strategy
What happens in practice
What amounts can be paid
How do we assess performance
Basic salary
Paying market-competitive base
salaries, commensurate with the
individual’s role, responsibilities
and experience allows us to
recruit and retain Executive
Directors of the calibre required
to implement our strategy.
Salaries are reviewed annually with any increase
usually made in July or following a material change
in responsibilities. The Committee will determine
any increases to be made.
Salary increases will be applied in line with
the outcome of an annual salary review.
Not applicable
Any increase is determined by a formal appraisal
by the Committee, taking into account market pay
levels, a review of salaries against companies of
similar size, complexity and type, Group performance,
as well as the remuneration arrangements operated
throughout the Group, with reference to UK based
employees in particular for pay comparison levels.
The maximum annual salary increase will
normally be in line with the average increase
applied to the UK workforce. However,
larger increases may be awarded in certain
circumstances including, but not limited to,
an increase in scope or responsibility of the
role; to apply salary progression for a newly
appointed Director; where the Director’s
salary has fallen behind market positioning.
Where increases are awarded in excess
of that for the UK employee population,
the Committee will provide the rationale
in the relevant year’s Annual Report
on Remuneration.
As previously disclosed to shareholders,
it is anticipated that the CEO’s salary will
increase at a greater level than that for the
general employee population as his salary
was intentionally set below market rates on
appointment because he was new to the
role as CEO.
Benefits in kind
We provide cost-effective
benefits which support the
wellbeing of employees.
Provision of death, disability and medical insurance
cover (which can include spouse and dependents
cover). Life assurance of 4 x salary, paid holiday
and medical check-ups are also provided.
The benefits provided may vary by role
and levels of cover provided reflect market
practice and the individual circumstances
of the Executive Directors.
If required, the Company would provide access to
independent financial and legal advice on a case
by case basis.
It is not anticipated that the current cost
of benefits (as set out in the Annual Report
on Remuneration) would increase materially
over the period for which this policy
will apply.
Cash in lieu of a company car was previously provided
to one Director although it is not anticipated this will
be offered generally to Executive Directors.
These benefits are non-pensionable.
Pension
We provide defined contribution
pension arrangements, or cash
in lieu of pension.
We provide defined contribution pension
arrangements, or cash in lieu of pension. The
Executive Directors are eligible to participate in
the Company’s defined contribution pension plan
arrangements or other similar pension plans as
appropriate to the Executive Director’s nationality
or location.
Contributions are based on a percentage of salary
which is currently limited to a pensions cap. The
Company also operates an auto-enrolment pension
scheme which an Executive Director could participate
in instead of the main pension plan.
Not applicable
The Committee retains the discretion
to approve a higher cost in exceptional
circumstances (e.g. relocation) or in
circumstances where factors outside the
Company’s control have changed materially
(e.g. market increases in insurance costs).
Maximum employer contributions are
currently 12.5% of the capped salary
under the UK pension plan.
The Committee may review pension
contribution levels in the future if
benchmarking reflects that the current
contribution levels and method of
calculation are off-market. Any increase
in contributions would not result in a
pension contribution in excess of 20%
of the uncapped basic salary.
Not applicable
68
REMUNERATION REPORT CONTINUED
Component
How does this link to strategy
What happens in practice
What amounts can be paid
How do we assess performance
Annual
cash bonus
We provide an annual bonus to
incentivise the achievement of
annual financial and operational
goals in line with Group strategy.
Bonus payment levels are determined by the
Committee annually by reference to performance
against targets set at the start of the financial
year. Personal objectives are set annually by
the Committee.
Maximum opportunity:
125% of salary.
Bonus is based on achievement
of annual financial and
personal objectives.
Performance metrics are selected
to support the annual business
strategy which we believe also
lead to enhancement of
shareholder value.
Target opportunity.
75% of salary.
In exceptional circumstances, the Committee has the
ability to exercise discretion to override the formulaic
bonus outcome within the limits of the scheme where
it believes the outcome is not truly reflective of
performance, and to reflect the actual delivery of
value to shareholders. Any discretionary adjustments
will be detailed in the following year’s Annual Report
on Remuneration.
Details of the measures and
weightings applicable for the
financial year under review are
provided in the Annual Report
on Remuneration.
The Committee may change
the measures used if other
measures are deemed more
suitable to allow delivery of
the Company’s strategy.
The Committee may exercise its discretion to
clawback bonuses in certain exceptional
circumstances which may include (but are not limited
to) gross misconduct, fraud or a significant downward
revision of the financial results of the Group.
Bonus Share
Award (BSA)
We provide the opportunity
to participate in the BSA as it
links the delivery of short-term
financial and operational
performance to sustained
shareholder value creation.
Participation in the BSA
reinforces continued delivery
of the LRBP.
We make annual monetary awards which convert
to a number of shares subject to achievement
of agreed annual financial targets. The resulting
shares vest over the subsequent three years,
subject to continued employment.
Additional shares in lieu of accrued dividends over
the vesting period are awarded only on the number
of shares that vest.
Unvested awards and vested awards that have not yet
been transferred to the Executive Director are subject
to clawback, i.e. forfeiture or reduction in exceptional
circumstances. Such circumstances may include
(but are not limited to) gross misconduct, fraud or
a significant downward revision of the financial
results of the Group.
Performance
Share Award
(PSA)
Employee
share plans
Maximum opportunity for all Executive
Directors is up to 200% of salary (300%
in exceptional circumstances).
The Committee’s current intention is to
make awards of up to 200% and 175% of
salary for the CEO and CFO, respectively.
We make annual awards of shares, which vest after
at least three years subject to performance over
a three-year period.
Maximum opportunity for all Executive
Directors is up to 200% of salary (300%
in exceptional circumstances).
Additional shares in lieu of accrued dividends over
the vesting period are awarded only on the number
of shares that vest.
Threshold performance will result in the
vesting of 30%/0%/0% of the maximum
award under the TSR/EBITDA/strategic
performance elements.
The financial performance
measures in the PSA reflect the
value drivers in the LRBP.
Unvested awards are subject to clawback, i.e.
forfeiture or reduction in exceptional circumstances.
Such circumstances may include (but are not limited
to) gross misconduct, fraud or a significant downward
revision of the financial results of the Group.
We operate employee share savings plans for our
global workforce where, depending on location,
savings periods of between 2 and 3 years operate.
The Committee sets annual
performance measures (currently
based on the same financial
objectives as for the annual
cash bonus plan) and may
change these for future awards
as it considers appropriate.
Threshold performance results in
60% conversion of the monetary
award into shares.
We believe the PSA aligns
executives’ interests with
long-term shareholder value
creation through rewarding the
delivery of a mix of financial
measures and relative total
shareholder return (‘TSR’).
To encourage share ownership
across all employees as allowed
by HMRC and relevant local laws.
The personal element will not be
weighted more than 30% of the
total in any year.
The intended award levels are included
in the Annual Report on Remuneration
on page 78.
Participation levels set by HMRC or
relevant local laws from time to time.
The performance measures and
respective weightings may vary
year-on-year to reflect strategic
priorities, and will include a
financial market measure.
Measures for outstanding PSPs
include an element for relative
TSR and EBITDA, and PSAs from
2015 include a third element
linked to strategic performance.
Details of the measures and
weightings applicable for the
financial year under review are
provided in the Annual Report
on Remuneration. Changes to
weightings and performance
targets will be retrospectively
explained to shareholders.
Not applicable
We will look at opportunities to offer other
employee share plans in the future.
REPLACEMENT SHARE PLANS
The Inmarsat plc Executive Share Plan (ESP) was approved by shareholders at the 2014 AGM and replaced the previous Executive Share Plans. Share awards since
May 2014 have been made in accordance with the new share plan rules.
Under the ESP the Company can grant Bonus Share Awards and Performance Share Awards, which replicate the previous Bonus Share Plan and Performance Share
Plan awards. The Company will also be able to grant Restricted Share Awards under the ESP. Restricted Share Awards will not be subject to performance conditions,
and will not be granted to Executive Directors except on recruitment, as explained below in the ‘Approach to Recruitment Remuneration’.
The Company also received shareholder approval at its 2014 AGM for the Inmarsat plc 2014 Sharesave Plan and the Inmarsat plc 2014 Share Incentive Plan,
replacing the previous Sharesave Plan and Share Incentive Plan which had expired. Executive Directors are eligible to participate in these plans.
PAYMENTS FROM EXISTING VARIABLE PAY AWARDS
Executive Directors are eligible to receive payment from any award made prior to the approval and implementation in May 2014 of the Remuneration Policy.
Any commitment made which is consistent with the Remuneration Policy in force at the time the commitment was made will be honoured, even when it is not
consistent with the policy prevailing at the time such commitment is fulfilled.
Details of outstanding awards to Executive Directors are provided in the Annual Report on Remuneration.
STRATEGIC REPORT
GOVERNANCE
PERFORMANCE MEASUREMENT SELECTION
Our incentive plans (excluding restricted share awards and all-employee share
plans) all include financial performance requirements. Performance targets are
set to be stretching, taking into account the Company’s strategic priorities and
the economic environment in which the Company operates. Targets are set
taking into account a range of reference points including the Group’s LRBP,
broker forecasts, and historical performance. Achievement of these targets
delivers to shareholders the value inherent in the LRBP.
The annual cash bonus plan and BSA reflect the financial targets which the
Board believes are key to driving the business. Revenue and EBITDA reflect the
underlying financial success of the business and support the annual business
strategy as well as value creation for Inmarsat’s shareholders.
The PSA currently has two financial performance requirements. EBITDA growth
and the Company’s share price performance against the FTSE 50-150 excluding
investment trusts. A third performance metric has been included for the 2015
share awards to further improve alignment with our strategy and details are
provided on pages 78 and 79 where we set out the performance metrics to
be used. All three performance metrics are linked to our long-term business
strategy, and support shareholder value creation.
The Committee retains the ability to adjust and/or set different performance
measures following a corporate event (such as a change in strategy, a material
acquisition and/or divestment of a Group business or a change in prevailing
market conditions) which causes the Committee to determine that the measures
are no longer appropriate and that amendment is required so that they achieve
their original purpose.
69
Each element of remuneration reflects the following assumptions:
> Minimum: includes fixed remuneration only, i.e. base salary, taxable
benefits and pension;
> Target: includes fixed remuneration plus the amounts for on-target
performance under the annual cash bonus plan (60% of maximum) and
BSA (60% of maximum monetary value of 200% and 175% of salary for
the CEO and CFO respectively), and threshold performance under the PSA
(30%/0%/0% of maximum under the TSR/EBITDA/strategic performance
elements, based on maximum opportunities of 200% and 175% of salary
for the CEO and CFO respectively); and
> Maximum: includes fixed remuneration and maximum payment under
all incentive plans.
CEO: RUPERT PEARCE (£000)
4,000
3,200
As a global business we accept that there may be different local arrangements
that are appropriate to apply but overall, this principle applies across the different
geographies in which we operate. Employees receive variable pay which gives
them incentives appropriate to their role in the organisation and is reflective of
how we deal with Executive Directors too.
In general, the remuneration policy and principles which apply to other senior
executives is consistent with that set out in this report for Executive Directors.
All employees participate in bonus schemes. Group senior executives are eligible
to participate in the BSA and some also participate in the PSA. The BSA may
operate with division-specific targets for some participants, as appropriate.
All employees are eligible to participate in employee share plans which are
generally the UK Sharesave Scheme or an equivalent international plan.
Participation is on generally the same terms subject to local regulations.
SHAREHOLDING GUIDELINES
The guideline for Executive Directors is that they hold 5x base salary in
beneficially owned ordinary shares.
For new Executive Directors, we would expect the individual to build up a
shareholding to the 5x guideline over a period of time, generally within five
to seven years.
PAY SCENARIO CHARTS
The following charts provide an estimate of the potential future reward
opportunities for the two current Executive Directors (CEO and CFO), and the
potential split between the different elements of pay under three different
performance scenarios: ‘Minimum’, ‘Target’ and ‘Maximum’. Potential reward
opportunities are based on Inmarsat’s current Remuneration Policy, applied to
salaries as at 1 January 2015. Note that the projected values exclude the impact
of any share price movement.
3,269
2,400
63%
1,650
1,600
43%
800
REMUNERATION POLICY FOR OTHER EMPLOYEES
Remuneration arrangements throughout the Inmarsat Group are determined
on the same principle as for remunerating Executive Directors, in that reward
should support our business strategy. It should be sufficient to attract and
retain high-performing individuals.
• Fixed remuneration
• Annual variable remuneration
• Long-term remuneration
0
20%
544
24%
100%
33%
17%
Minimum
On-target
Maximum
CFO: TONY BATES (£000)
3,000
2,400
• Fixed remuneration
• Annual variable remuneration
• Long-term remuneration
2,613
60%
1,800
1,356
1,200
600
0
40%
22%
475
25%
100%
35%
18%
Minimum
On-target
Maximum
APPROACH TO RECRUITMENT REMUNERATION
External appointments
In the event of hiring a new Executive Director, the Committee will typically align
the remuneration package with the approved Remuneration Policy.
In determining appropriate remuneration arrangements on hiring a new
Executive Director, we will take into consideration all relevant factors (including
but not limited to quantum, the type of remuneration arrangements for other
Inmarsat executives and the jurisdiction the candidate was recruited from) to
ensure that arrangements are in the best interests of both our Company and its
shareholders without paying more than is necessary. The Remuneration Policy
in place will apply to the new appointment unless there are variables to the
appointment which are noted below and are agreed by the Committee as
appropriate to offer.
70
The Committee may make awards on hiring an external candidate to ‘buy-out’ remuneration arrangements forfeited on leaving a previous employer. In doing so,
we will take account of relevant factors including any performance conditions attached to these awards, the form in which they were granted (for example, cash or
shares), the time over which they would have vested and the share price at the time of buy-out. Generally buy-out awards will be made on a comparable basis. The
Committee has the discretion to determine whether such buy-outs shall be granted as Bonus Share Awards, Performance Share Awards or Restricted Share Awards
under the ESP. The Committee may also avail itself of the provision in the Listing Rules (Chapter 9.4.2) regarding long-term incentive awards in relation to the buy-out
of awards forfeited on leaving a previous employer.
Component
Approach
Maximum annual value
Basic salary
To be determined by reference to relevant market pay levels, experience and skills of the
individual, internal relativities and the current salary of the incumbent in the role.
Pension and benefits
To be eligible to receive benefits in line with the current policy, and as well as any expatriation
allowances and any necessary expenses relating to an Executive Director’s relocation
on appointment.
Sharesave Scheme
To be entitled to participate on identical terms to other employees.
Annual cash bonus
The scheme as described in the policy table will apply to new appointees. The Committee will
determine on a case by case basis whether the executive will receive the full annual payment
or a pro-rata amount.
125% of salary
Bonus Share Awards
To participate in annual awards on the same terms as other Executive Directors, as described
in the policy table.
Up to 200% of salary
(300% in exceptional
circumstances)
Performance Share
Awards
To participate in annual awards on the same terms as other Executive Directors, as described
in the policy table.
circumstances)
Restricted Share Awards
To make awards of shares which vest in accordance with a schedule which will be agreed
by the Committee, subject to continued employment only. Awards will typically be made to
facilitate the ‘buy-out’ of awards forfeited on leaving a previous employer, and the vesting
schedule will typically match that of the awards forfeited. Additional shares in lieu of accrued
dividends over the vesting period are awarded only on the number of shares that vest.
circumstances)
Details of how we applied the Policy to the recruitment of Mr Bates as our new CFO during 2014 are provided on page 75.
Internal appointments
Any individual who is promoted to become an Executive Director will be treated on the same basis as if they were an external hire in respect of the elements of
remuneration and benefits. Where the new appointee has an initial salary set below market, any shortfall will be managed with phased increases over a period
of several years, subject to the Executive’s development in the role.
Such individuals are also eligible to receive payment from any award made prior to their appointment to the Board.
NON-EXECUTIVE DIRECTORS
For the recruitment of a new Non-Executive Director, the individual will receive a letter of appointment which will summarise the time requirement expected of
them and set out details of their fees (base fee and Committee membership fee). Fees will be the same level as for other Non-Executive Directors, except where
the Nominations Committee determines that a different level is appropriate based on individual contribution. Reasonable expenses will also be paid and cover
will be provided to all Directors, Executive and Non-Executive, under the Company’s Directors’ and Officers’ insurance policy.
Element
Purpose and link to strategy
To attract and retain
Non-Executive
Director fees and high-calibre NonCommittee fees Executive Directors
by offering a market
competitive fee level.
Operation
Maximum
The Non-Executives are paid a basic fee.
To avoid setting expectations,
there is no maximum fee level.
The Committee Chairman and other members of the Board
Committees (Audit, Remuneration, Nominations) and the Senior
Independent Director/Deputy Chairman are paid supplements to
reflect their additional responsibilities.
The Board Chairman will be paid a single fee for all his responsibilities,
and receive healthcare cover.
NED fee levels are reviewed periodically by the Chairman and
Executive Directors with reference to market levels in comparably
sized FTSE companies and a recommendation is then made to
the Board. The Chairman’s fee is reviewed by the Committee taking
into account fee levels at the same set of companies, and is then
approved by the Board. If any changes are to be made, they are
usually effective in July.
Aggregate fees were increased
to £1m following approval by
shareholders at the 2014 AGM.
The fees paid to NonExecutive Directors in respect
of the year under review (and
for the following year) are
disclosed in the Annual Report
on Remuneration.
STRATEGIC REPORT
GOVERNANCE
71
SERVICE CONTRACTS AND EXIT PAYMENT POLICY
Executive Director
Date of service contract
Term of office
Notice period
Rupert Pearce
Tony Bates
18 January 2012
21 February 2014
Indefinite until termination by either party
Indefinite until termination by either party
12 months’ written notice by Company or Director
12 months’ written notice by Company or Director
The Company in its absolute discretion may agree a shorter notice period with the departing Director. All Directors have a clause to allow a payment in lieu of notice to
be made. The Company may make such payments monthly (up to 12 months) and these payments shall be reduced if the Executive finds alternative employment.
Severance payments in relation to the service contract are limited to no more than one year’s base salary plus other benefits, which may include annual bonus
(subject to performance conditions being fulfilled and pro-rated for time and payable at the normal annual bonus payment date), unless the Committee believes
this is unreasonable given the circumstances for departure or unless dictated by applicable law.
The Committee reserves the right to make additional exit payments where such payments are made in good faith:
> in discharge of an existing legal obligation (or by way of damages for breach of such an obligation); or
> by way of settlement or compromise of any claim arising in connection with the termination of a Director’s office or employment.
The Committee retains discretion to determine appropriate bonus amounts and vesting of share-based awards, as well as the timing of vesting, taking into
consideration the circumstances in which an Executive Director leaves. The rationale for any discretion exercised will be provided in the following year’s Annual Report
on Remuneration.
Reason for leaving
Timing of vesting
Treatment of awards
Annual bonus
Good leaver (see below for definition)
Normal payment date
Performance against targets will be assessed at the end of
the year in the normal way and any resulting bonus will be
pro-rated for time served during the year
Not applicable
All other reasons
BSA and BSP
All other reasons
PSA and PSP
All other reasons
RSA
All other reasons
Employee Share Plans
All other reasons
Awards lapse
Normal vesting date, although the Committee
has discretion to accelerate
Awards lapse
Any earned but not yet transferred shares will be retained.
The treatment of unvested shares is at the Committee’s
discretion
Not applicable
Awards lapse
Any outstanding awards will be pro-rated for time and
subject to performance conditions being met
Not applicable
Awards lapse
Any outstanding awards will be pro-rated for time
Share options can be exercised for a certain
period of time after departure
Awards lapse
The individual will be entitled to exercise his share options
in accordance with HMRC approved rules
Not applicable
Not applicable
A ‘good leaver’ is the departure of an Executive Director for reasons of ill-health, redundancy, retirement, death or any other reason which the Committee in its
absolute discretion permits. Termination for cause is regarded as a bad leaver and no awards shall vest.
Upon a change of control of the Company, share awards may be transferred to participants within such period as the Committee may permit based on the extent to which
the Committee determines that the performance conditions have been met. Alternatively, participants shall be required to give up existing share awards and receive shares
in the new company being equivalent to the original award. For the annual bonus, the Committee will assess performance against targets at the point of change of control
and any resulting bonus will be pro-rated for time and paid immediately. The final treatment for the annual bonus remains subject to the Committee’s discretion.
In the event that the Company terminates an Executive Director’s service contract other than in accordance with the terms of his contract, the Committee will act in the
best interests of the Company and ensure there is no reward for failure. When determining what compensation, if any, is to be paid to the departing Executive Director, the
Committee will give full consideration to the circumstances of the termination, the Executive Director’s performance, the terms of the service contract relating to notice
and payments in lieu of notice, and the obligation of the Executive Director (where it is in the service agreement) to mitigate any loss which he may suffer as a result.
Although the Company would seek to minimise termination costs, the Committee may in appropriate circumstances provide other elements in a leaving Executive
Director’s termination package, including (without limitation) compensation for the waiver of statutory rights in exchange for him executing a settlement agreement,
payment of the departing Executive Director’s legal fees in connection with his termination arrangements, and payment of outplacement fees. In addition, the Committee
may determine that the Director should continue to be engaged by the Company on a consultancy arrangement or other terms following cessation of his directorship.
72
Non-Executive Directors
Date of appointment
letter
Date of appointment
Simon Bax
28 May 2013
Sir Bryan Carsberg
18 April 2005
Stephen Davidson
16 June 2005
Kathleen Flaherty
9 May 2006
13 March 2014
Janice Obuchowski
6 May 2009
Dr Abe Peled
10 May 2013
John Rennocks
5 January 2005
Robert Ruijter
16 December 2014
Andrew Sukawaty(1)
16 September 2014
Dr Hamadoun Touré
16 December 2014
18 April 2005
Admiral James Ellis Jr (Rtd)(2)
18 June 2013
22 June 2005
22 June 2005
9 May 2006
6 May 2014
5 May 2009
18 June 2013
4 January 2005
1 February 2015
1 January 2015
1 March 2015
22 June 2005
Name
(1) Mr Sukawaty became Non-Executive Chairman with effect from 1 January 2015.
He was previously Executive Chairman.
(2) Admiral James Ellis Jr (Rtd) retired from the Board on 5 March 2014.
Appointments are initially for three years and unless agreed by the Board, they
may not remain in office for a period longer than six years, or two terms in office,
whichever is the shorter. The Corporate Governance Code has special provisions
regarding determination of the independence of directors when they have
served for more than nine years.
Non-Executive Directors do not have contracts of service and their appointment
will normally terminate on:
> a Director choosing to resign voluntarily;
> a Director being prohibited from serving by law, bankruptcy or illness;
> if the Nominations Committee does not approve the extension of
the appointment;
> a Director is found guilty of misconduct; and
> a Director is not re-elected by the shareholders following retirement at an AGM.
Non-Executive Directors do not receive an annual bonus and do not participate
in any of the Company’s incentive plans. They receive no benefits, except that
healthcare cover is provided for the Non-Executive Chairman, as a continuation
of the cover provided to him over the last 10 years. The Company reimburses the
reasonable expenses the Non-Executive Directors incur in carrying out their
duties as Directors.
EXTERNAL APPOINTMENTS
Executive Directors serving as Non-Executive Directors on the board of
other companies are permitted to retain all remuneration and fees earned from
outside directorships subject to a maximum of two external board appointments.
Directors accepting such positions shall take into account any guidelines for
external directorships as contained in the Corporate Governance Code, subject
at all times to pre-authorisation of the appointment by the Chairman, or in the
case of the Chairman, the Deputy Chairman/Senior Independent Director (SID).
CONSIDERATION OF CONDITIONS ELSEWHERE IN THE COMPANY
Although we do not consult directly with employees on executive remuneration
policy, the Committee takes into consideration the remuneration arrangements
for the wider employee population in making its decisions on remuneration for
senior executives. This relates to philosophy around levels of base salary,
operating bonus plans for all employees, pension entitlement and benefit
provision also being available across the Group.
The Group consults with its employees on general employment policies in a
range of ways, including formal consultation forums in some countries where
it operates. Our staff are encouraged to provide feedback directly to their
line managers or to the HR team or to a confidential email address.
CONSIDERATION OF SHAREHOLDER VIEWS
When determining remuneration, the Committee considers shareholder views
and the guidelines of investor bodies. The Remuneration Committee Chairman,
Deputy Chairman/SID and Company Secretary engage pro-actively with
major shareholders and shareholder representatives whenever appropriate.
The Committee is always open to feedback from shareholders on Remuneration
Policy or individual arrangements, and is committed to consulting shareholders
in advance of major changes. Details of votes cast for and against the resolution
to approve last year’s remuneration report are provided in the Annual Report on
Remuneration section of this report.
ANNUAL REPORT ON REMUNERATION
The following section provides details of how Inmarsat’s Remuneration Policy
was implemented during the financial year ending 31 December 2014 and how
the Committee intends to implement the policy in 2015.
The Regulations require our external auditor to report to shareholders on the
audited information within this report and to state whether, in their opinion, the
relevant sections have been prepared in accordance with the Act. The external
auditor’s opinion is set out on pages 84 to 87 and we have clearly marked the
audited sections of the report.
REMUNERATION COMMITTEE MEMBERSHIP IN 2014
The Committee consists entirely of independent Non-Executive Directors. We
had five scheduled meetings during the year to discharge our responsibilities.
Committee membership and attendance are set out in the table below:
Number of scheduled meetings in 2014
Stephen Davidson (Committee Chairman)
Sir Bryan Carsberg
Kathleen Flaherty
General C. Robert Kehler (Rtd)(1)
Simon Bax
Attendance
5/5
5/5
5/5
3/3
5/5
2/2
(1) General C. Robert Kehler (Rtd) joined the Board on 6 May 2014.
During the year, the Committee operated to a forward agenda which ensured
that items were discussed at the appropriate time during the year. Its key
activities included:
> annual review of Executive Director salaries;
> review of performance outcomes for the annual bonus, BSA and PSA in
respect of performance to 31 December 2014;
> calibration of award levels and targets for the 2014 BSA and PSA awards for
the Executive Directors;
> review of the new Non-Executive Chairman’s fee;
> preparation of the 2013 Directors’ Remuneration Report, including
consideration of the changes required in order to comply with new
reporting regulations;
> review of the service contract of Mr Bates, who was appointed to the Board as
CFO in June 2014;
> comprehensive review of incentive plans across the Group;
> consideration of shareholder views on issues which may have arisen during
the year;
> review of potential changes to the operation of the BSA and PSA; and
> preparation for the 2014 AGM.
STRATEGIC REPORT
GOVERNANCE
73
ADVISERS
During 2014, the Committee was advised internally by Andrew Sukawaty (Executive Chairman during the year), Rupert Pearce (CEO), Tony Bates (CFO), Debbie Jones
(Executive Vice President, Corporate Development whose responsibilities include human resources), Alison Horrocks (Executive Vice President, Corporate Governance
and Company Secretary) and Matt Smith, Inmarsat’s Head of Reward. John Rennocks, the Company’s Deputy Chairman also attends the meetings and contributes to
the discussion. No member of management is present at a Committee meeting when their own arrangements are being discussed.
Kepler Associates was appointed by the Committee after consultation with the Board in September 2012 following a tendering process, and continued to act as the
Committee’s independent external adviser during the year. Kepler’s responsibilities include a mandate to review our remuneration principles and practices against
corporate governance best practice. Kepler reports directly to the Committee Chairman and is a signatory of the Code of Conduct for Remuneration Consultants
(which can be found at www.remunerationconsultantsgroup.com). Kepler provides no non-remuneration-related services to the Company and is therefore
considered independent. During 2014, Kepler’s fees were based on time and materials, and fees (excluding VAT and expenses) totalled £36,300 (2013: £33,700).
SUMMARY OF SHAREHOLDER VOTING AT THE 2014 AGM
The following table shows the results of the binding and advisory shareholder vote on the Directors’ Remuneration Policy and the Annual Report on Remuneration
of the 2014 Directors’ Remuneration Report, respectively, at the 2014 AGM:
Directors’ Remuneration Policy
Total number
% of
of votes
votes cast
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Votes withheld
320,673,577
10,836,312
331,509,889
6,733,406
96.73%
3.27%
100%
n/a
Annual Report on Remuneration
Total number
% of
of votes
votes cast
321,288,935
5,177,325
326,466,260
11,777,035
98.41%
1.59%
100%
n/a
We have followed up with any queries from shareholders during the year on remuneration and general governance issues and sought the views of several shareholders
regarding the former Executive Chairman’s transition to the Non-Executive Chairman role. Shareholders contacted were supportive and this input was valuable to the
Board and Nominations Committee in their decision-making.
The Committee will continue to engage with shareholders to facilitate their understanding of the Company, the environment in which it operates and how this
translates into our executive Remuneration Policy. The Committee wrote to the Company’s major shareholders in early 2015 regarding the introduction of strategic
measures within the PSA from 2015.
SINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS (AUDITED)
The table below sets out a single figure for the total remuneration received by each Executive Director for the year ended 31 December 2014 and the prior year:
Andrew Sukawaty
£'000
2014
Basic salary
Taxable benefits(1)
Pension(2)
Annual bonus(3)
Bonus share plan(4)
Long-term incentives(5)
Total
615
38
88
738
1,181
1,222
3,882
2013
615
24
77
627
1,181
–
2,525
Rupert Pearce
£'000
2014
485
9
16
622
677
543
2,352
2013
451
7
14
469
493
–
1,434
Tony Bates(6)
£'000
2014
263
7
9
563
450
0
1,292
2013
–
–
–
–
–
–
–
(1) The taxable benefits received by the Executive Directors include healthcare benefits, a car allowance for one Director and benefits relating to staff entertaining. The Company also
reimburses the travel costs incurred by Directors for travel to Board meetings where these do not take place in the country in which they are domiciled. These travel expenses are
subject to a specific deduction under HMRC rules and are not taxable. The tax due in respect of the staff entertainment benefit is settled by the Company.
(2) Represents the pension payment made by the employer to the pension scheme and/or to the individual Director as cash in lieu of pension (see page 77 for details).
(3) Represents the annual bonus payment in relation to the financial year (see pages 74 and 75 for details).
(4) Represents the face value of the shares to be awarded under the Bonus Share Award in relation to the financial year ended 31 December 2014 and awarded under the Bonus Share Plan
in relation to the financial year ended 31 December 2013 (see page 76 for details).
(5) Represents the value of Performance Share Plan awards based on the value at vesting of shares vesting on performance over the three-year period ended 31 December 2014.
(6) Tony Bates joined on 2 June 2014. His salary and benefits are pro-rated. His annual bonus and Bonus Share Award amounts are annualised figures.
(7) Mr Medlock left the Board and the Company on 3 January 2014. He received £3,700 (2013 : £340,000) as basic salary, £487 (2013: £5,000) for taxable benefits and £185 (2013:£17,000)
as a pension contribution in 2014. He also received £2,600 for leave not taken. No bonus was paid for 2014, and all his outstanding awards under the BSP and PSP lapsed.
74
SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS (AUDITED)
The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the year ended 31 December 2014 and the prior year:
Base fee
£'000
2014
Simon Bax
Sir Bryan Carsberg
Stephen Davidson
Kathleen Flaherty
General C. Robert Kehler (Rtd)(1)
Janice Obuchowski
Dr Abe Peled
John Rennocks
Total
50.8
50.8
50.8
50.8
67.0
50.8
50.8
95.5
17.3
484.6
Additional fees
£'000
2014
2013
26.8
50.0
50.0
50.0
–
50.0
26.8
94.1
98.0
445.7
4.5
9.0
19.0
4.5
3.0
4.5
4.5
10.0
1.6
60.6
2013
2.5
9.0
19.0
4.5
–
4.5
2.4
10.0
9.0
60.8
Taxable benefits
£'000
2014
–
1.0
1.0
–
–
–
–
1.0
–
3.0
2013
–
1.0
1.0
–
–
–
–
–
–
2.0
Total
£'000
2014
55.3
59.8
69.8
55.3
70.0
55.3
55.3
105.5
18.9
545.2
2013
29.2
60.0
70.0
54.5
–
54.5
29.2
104.1
107.0
508.5
Exchange Rate – of $1.5593/£1.00
(1) General C. Robert Kehler (Rtd) joined the Board on 6 May 2014.
The fee for Admiral James Ellis Jr (Rtd) included a fee as a Non-Executive Director of Inmarsat Inc, a wholly owned subsidiary in the US. As at 5 March 2014, this fee was $13,427.86
converted from Sterling at the spot rate at each payment date.
The fee for General C. Robert Kehler (Rtd) included a fee of £51,500 as a Non-Executive Director of Inmarsat Inc, a wholly owned subsidiary in the US.
The taxable benefits received by the Non-Executive Directors were associated with accommodation costs incurred with attendance at two-day Board meetings. The tax due in respect of
these benefits is settled by the Company. The Company also reimburses the travel costs incurred by the Non-Executive Directors for travel to Board meetings where these do not take place
in the country in which they are domiciled. These travel expenses are subject to a specific deduction under HMRC rules and are not tax deductible.
The fee for John Rennocks includes the work he undertakes as Senior Independent Director and Deputy Chairman.
INCENTIVE OUTCOMES FOR THE YEAR ENDED 31 DECEMBER 2014
Annual cash bonus in respect of 2014 performance
In 2014, the annual cash bonus was based on the achievement of Group
financial targets and individual performance objectives.
80% of the bonus is linked to financial performance, as measured through
revenue (50% of financial element), operating expenditure (35%) and capital
expenditure on an accruals basis (15%).
The remaining 20% of the bonus is linked to personal performance, as appraised
against achievement of challenging objectives set by the Committee at the start
of the year. Personal performance targets are clearly defined and measurable,
and are linked to Group strategic and operational performance.
EXECUTIVE CHAIRMAN
> Ensure CEO success through a constructive and supportive
teaming relationship;
> Assist the CEO generally in support of business success;
> Manage the Board and Board evaluation process effectively;
> Support the Inmarsat-5 satellite programme delivery;
> Maintain relationships with major shareholders and the
investment community;
> Participate in Inmarsat business development efforts in BRIC countries; and
> Transition all key executive objectives to CEO by the end of 2014.
CEO
The outcomes under the financial and personal elements are calculated, and
the Committee exercises its judgement in applying a corporate multiplier to the
financial elements of the bonus based on the achievement of the financial
targets, along with a broader assessment of Company performance and
individual contributions over the year.
In January and March 2014, the Committee reviewed the above three financial
performance elements in respect of the current year, and determined them to
remain appropriate measures to use for the annual bonus plan for Executive
Directors. The Committee will disclose the 2014 financial targets in next year’s
Annual Report on Remuneration. We believe the targets used are commercially
sensitive if made public in the same reporting period as to which they apply.
Examples of the personal objectives for the Executive Directors for 2014 are
noted in the next column. Some have been excluded where we believe they
may be commercially sensitive if published.
> Deliver the 2014 financial budget as to revenues and
EBITDA performance;
> Maintain the Global Xpress Ka-band programme on time and to budget;
> Complete the sale of our retail energy business and leverage market
partnership for Global Xpress;
> Defend the Company’s position regarding LightSquared while it is
in bankruptcy; and
> Review opportunities for how to utilise the S-band license.
CFO
> Deliver the 2014 financial budget as to revenues and
EBITDA performance;
> Upgrade the forecasting, budgeting and planning processes to implement
more robust process and content;
> Agree and implement changes in internal and external reporting; and
> Reorganise the finance function to align with the set up of the
organisation through Business Units.
STRATEGIC REPORT
GOVERNANCE
75
In 2014, revenues were $1,286m, which exceeded stretch performance. Operating expenses were $372m which performed better than stretch; capital expenditure on
an accruals basis of $425m also performed better than stretch. A corporate multiplier was applied to the financial element of the bonus based on these results and
the Committee’s judgement of broader Company performance. The maximum and target annual bonus amounts that could be paid and actual cash bonus which
will be awarded to each Executive Director are set out below.
Name
Andrew Sukawaty
Rupert Pearce
Tony Bates
Target bonus
(% of salary)
Maximum bonus
(% of salary)
Actual bonus
outcome
for 2014
financial year
(% of salary)
75%
75%
75%
125%
125%
125%
120%
120%
125%
Bonus paid
for the 2013
financial year
(% of salary)
102%
104%
Nil
Mr Bates received an annual bonus opportunity as if he had been employed for the full year of 2014. The Committee decided that a full year’s annual bonus
opportunity was warranted because of Mr Bates’ strong performance and contribution to the Company since his appointment in June 2014, and because in agreeing
the terms for Mr Bates to join the Company, he gave up committed cash bonus awards at his previous employer. Some of the key contributions Mr Bates has already
made to the business have been in the new reporting structure for internal and external reporting to simplify the external view of the quarterly financial statements;
these changes have been very positively received by analysts and shareholders. Additionally, he has been instrumental in enabling the Company to finalise an
outstanding tax matter which has been of financial benefit to the Company. The combined value of the annualised cash bonus award (125% of salary) and awards
of 100% of salary under the BSA and PSA, were below the value of awards foregone by Mr Bates at his previous employer. These levels of awards have been made
in accordance with the Remuneration Policy regarding recruitment remuneration as set out on pages 69 and 70.
ANNUAL CASH BONUS IN RESPECT OF 2013 PERFORMANCE
Last year, the Company committed to disclosing the 2013 bonus financial targets in this year's Annual Report on Remuneration. The targets and actual performance
against them are set out below.
Measure
Weighting
(% of financial element)
Revenue
Opex
Capex
Total
EBITDA
50%
35%
15%
100%
Underpin for BSP
Performance targets
On-target
$1,240m
$728m
$731m
$641m
Stretch
Actual performance
$1,333m
$693m
$696m
$1,262m
$613m
$657m
$649m
Payout
(% of financial element)
23%
35%
15%
73%
Underpin met
Examples of the personal objectives for the Executive Directors for 2013 were provided in last year’s Annual Report on Remuneration, and payout under the personal
element was 17% and 19% of salary for the Executive Chairman and the CEO, respectively.
A corporate multiplier was applied to the financial element based on these results and the Committee’s judgement of broader Company performance. The Committee
took into account the outperformance of stretch targets in operating expenses, capital expenditure on an accruals basis and EBITDA, and determined that a corporate
multiplier of 1.17x, relating to the outperformance on two of the financial annual bonus metrics, should be applied to the calculated bonus outcomes. As a result, the
overall bonus outcomes for 2013 were 102% and 104% of salary for the Executive Chairman and the CEO, respectively.
BSP AWARD IN RESPECT OF 2013 PERFORMANCE
Details of the financial targets and actual performance against targets in respect of the 2013 BSP award are provided in the ‘Annual cash bonus in respect of 2013
performance’ section immediately above.
BSP AWARD IN RESPECT OF 2014
An allocation of shares will be made in respect of the March 2014 monetary awards based on Company performance for the financial year ended 31 December 2014.
The award will be calculated using the mid-market closing price of the Company’s ordinary shares on the day following the announcement of the Preliminary Results in
March 2015. The performance measures, weightings and actual performance against target were as follows:
Performance measure
Weighting
(% of maximum)
Actual performance against target
Revenue
Operating expenditure
Capital expenditure
50%
35%
15%
Revenues were $1,286m which is better than stretch
Operating expenses were $372m which is better than stretch
Capital expenditure on an accruals basis were $425m which is better than stretch
The minimum EBITDA level required before any share award could be made was exceeded. Based on performance achieved against each of the targets, 100% of the
monetary award will be converted to shares.
76
The table below shows the conversion of the 2014 BSP Award.
Executive Director
Maximum monetary award
Andrew Sukawaty
Rupert Pearce
Tony Bates
£1,181,148
£676,500
£450,000
Conversion rate
BSP outcome
100%
100%
100%
£1,181,148
£676,500
£450,000
As the conversion from monetary award to shares is calculated after the preliminary results announcement is made, the exact number of shares to be awarded is
not known at the date of this report. Details of shares awarded will be reported via an RNS to the London Stock Exchange. These shares will vest in equal tranches in
March 2016, 2017 and 2018, subject to continued employment. Details of the shares awards including performance targets will be included in the 2015 Annual Report
on Remuneration.
2012 PSP VESTING
On 30 March 2012, the then Executive Chairman and CEO received PSP awards of 304,663 and 135,462 shares. Vesting of the awards was dependent on 3-year TSR
vs. the FTSE 350 (excluding investment trusts) and 3-year EBITDA growth, both measured over the three years to 31 December 2014 and weighted equally. There was
no re-testing of performance. Performance targets for these awards are as follows:
Weighting
(% of maximum award)
Performance measure
3-year TSR vs. FTSE 350
(excluding investment trusts)
50%
3-year EBITDA growth p.a.
50%
Performance targets
Below median: nil vesting
Median:
30% vesting
Upper quartile: 100% vesting
(straight-line vesting applies between median and upper quartile)
Less than 1%: nil vesting
1%:
0% vesting
4%:
100% vesting
(straight-line vesting applies between 1% and 4%)
Excluding exceptional income of $192.6m from LightSquared in 2011, over the three years to December 2014, Group EBITDA increased from $661.8m to $701.0m, a
compound annual growth rate of 1.94%. This level of performance falls within the 1-4% range set at the time the award was made in March 2012 and leads to a 15.97%
vesting of the total award. In respect of relative TSR, the Company’s performance was at the 67th percentile vs. the FTSE 350 (excluding investment trusts), which gave
a vesting outcome of 38.5% of the total award. The total amount that will vest on 30 March 2015, subject to continued employment, will therefore be 54.47% of the
maximum award.
SCHEME INTERESTS AWARDED IN 2014 (AUDITED)
BSP award in respect of 2013
An allocation of shares was made in respect of the March 2013 BSP monetary awards based on Company performance for the year ended 31 December 2013.
The share award was based on the mid-market closing price of the Company’s ordinary shares following the announcement of the Preliminary Results in March 2014.
As advised in the 2013 Annual Report the conversion rate was 73% of the monetary amount into an award of shares which vest in equal tranches in March 2015, 2016
and 2017, subject to continued employment.
Executive Director
Maximum
monetary award
Conversion rate
Date of
share award
Awards made
during the year
Market price at
date of award
Face value at
date of award
Andrew Sukawaty
Rupert Pearce
£1,618,000
£676,500
73%
73%
8 March 2014
8 March 2014
171,369
71,649
£6.89
£6.89
£1,181,200
£493,845
The awards were made to Mr Sukawaty when he was the Executive Chairman of the Company.
2014 PSP
In March and June 2014, the Executive Directors received PSP share awards which will vest subject to performance over the three years to 31 December 2016.
Executive Director
Andrew Sukawaty
Rupert Pearce
Tony Bates
Date of grant
Awards made
during the year
Market price at
date of award
Face value at
date of award
Award as % of salary
Vesting date
19 March 2014
19 March 2014
10 June 2014
176,207
96,954
58,919
£6.97
£6.97
£7.63
£1,229,484
£676,496
£449,993
200%
150%
100%
19 March 2017
19 March 2017
10 June 2017
Mr Sukawaty remained in an executive position until 31 December 2014. He will therefore be entitled to a pro-rata PSP award of one-third of the award shown above which will vest at the
normal vesting date subject to performance conditions being achieved.
Mr Bates was appointed to the Board as CFO in June 2014, and received an award of 100% of salary shortly after his appointment.
STRATEGIC REPORT
GOVERNANCE
77
Vesting of the awards will be dependent on 3-year TSR vs. the FTSE50-150 (excluding investment trusts) and 3-year EBITDA growth, both measured over the three
years to 31 December 2016 and weighted equally. There will be no re-testing of performance. Performance targets for these awards are as follows:
Weighting
(% of maximum award)
Performance measure
3-year TSR vs. FTSE 50-150
50%
50%
Performance targets
Median:
30% vesting
Less than 5%: nil vesting
5%:
0% vesting
8%:
100% vesting
PENSION (AUDITED)
The Executive Directors are eligible to participate in the Company’s defined contribution pension plan arrangements. None participate in the defined benefit plan.
An Executive Director can become a deferred member of the pension plan or not join the pension plan and receive a capped employer contribution paid as additional
salary. An amount of 12.5% of capped salary is the highest amount paid. The capped salary level increases nominally each year.
Pensionable salary is currently limited to basic salary and subject to a UK Pension Plan Scheme Specific cap and US Internal Revenue Service earnings caps.
Neither Mr Pearce nor Mr Bates is a member of the UK defined contribution pension plan; Mr Sukawaty was a member of the US 401(K) plan until the end of 2014 at
which point he became a deferred member of the plan. Mr Sukawaty was entitled to an annual salary supplement equal to 12.5% of the difference between his basic
salary and the US Internal Revenue Service capped basic salary in lieu of the employer pension contribution. The normal retirement date under the UK pension plan
is age 65 with an employee able to retire from age 55. In the US plan, the normal retirement date is age 59.5. There are no additional pension benefits payable if a
Director retires early.
The current employer contributions (subject to the UK Pension Plan Scheme Specific cap of £145,200 for the 2014/15 tax year and US Internal Revenue Service
earnings caps as appropriate) are:
Andrew Sukawaty
Rupert Pearce
Tony Bates
12.5% of capped salary was paid in 2014, which is £88,000 in employer contributions
12% of capped salary was paid in 2014 which is £16,000 in employer contributions (the contribution rate was 10% for the first two
months and 12.5% for the remainder of the year)
12.5% of capped salary was paid in 2014 which is £9,000 in employer contributions (in respect of the period from 2 June to
31 December 2014)
EXIT PAYMENTS MADE IN THE YEAR (AUDITED)
Mr Medlock, who resigned as a Director and left on 3 January 2014, did not receive any exit payments in 2014.
PAYMENTS TO PAST DIRECTORS (AUDITED)
No payments were made to past Directors.
EXTERNAL APPOINTMENTS
One Executive Director held positions in other companies as a Non-Executive Director during the year. The fees he received relating to the 2014 financial year were as
follows:
Name
Company in which Non-Executive Directorship held
Andrew Sukawaty
Ziggo B.V.
Sky plc
2014 fee
€77,750
£58,166
IMPLEMENTATION OF REMUNERATION POLICY FOR 2015
Base salary
The table below shows the Executive Directors‘ salaries as at July 2013 and July 2014. Salaries will next be reviewed in July 2015, which is the same time for the
general workforce.
Name
Rupert Pearce
Tony Bates
Salary at
1 July 2014
£000
% change
Salary at
1 July 2013
£000
519
450
15%
–
451
–
78
We have already indicated to shareholders that the Committee expects to increase Mr Pearce’s salary each year to reflect his demonstrated development in the
CEO role and the performance of the business. Mr Pearce was appointed on a salary that was significantly below the median level for a FTSE 50-150 CEO, and the
Committee’s original intention was to increase salary by around 10% in July 2013 in light of strong individual and Company performance. However, no increase was
awarded, in line with the salary freeze for the wider employee population, and the Committee advised last year that a higher than normal increase might be awarded
in 2014 and 2015 to move to a more appropriate level of salary for Mr Pearce.
In this context, the Committee increased Mr Pearce’s salary by 15% to £519,000, effective 1 July 2014. This increase reflects Mr Pearce’s continued strong performance
in his role and significant contribution to the business, and takes into account last year’s salary freeze. A salary of £519,000 remains below median for a FTSE 50-150
CEO. The salary increase applied across the business in 2014 (excluding that for the Executive Director) was around 7%. Both the CEO and CFO’s salaries will next be
reviewed in July 2015, taking into account market pay levels and pay increases for the wider employee population.
Pension
Cash payments in lieu of employer pension contributions for 2015 will be made in accordance with the Remuneration Policy table set out on page 67, and will be on
the same basis as those made in 2014.
Annual cash bonus
The maximum annual bonus opportunity for Executive Directors in 2015 will remain unchanged from the opportunity in 2014, and will be 125% of salary.
As part of a process of refocusing on Group performance and more closely aligning the bonus schemes across the Group, for 2015 performance will be measured
by reference to revenue (33%) and EBITDA targets (67%). The Committee believes that operating expenditure (a previous metric) is fully captured within the
EBITDA metric. Capital expenditure, which by its nature is mainly driven by multi-year major programmes will now be addressed through the long term incentive
plan objectives. The reason for using revenue and EBITDA is that these two measures have strong line-of-sight, are easily understood and are two of our
key reporting metrics to shareholders. The Committee has the ability to apply up to 30% of the maximum bonus opportunity potential in consideration of
the achievement of personal objectives. The same performance metrics are used in the annual bonus plan for all employees. As was the case last year, the
Committee has determined that performance targets will not be disclosed on a prospective basis for reasons of commercial sensitivity, but will be disclosed
on a retrospective basis in the 2016 Annual Report on Remuneration.
2015 SHARE AWARDS:
BSA
In March 2015, a monetary BSA award will be made and nominally converted to shares immediately. As in previous years, the level of award will not be confirmed until
the results for 2015 have been determined and may be lower (but not higher) than the initial award. There is no change to the vesting timetable: the shares will vest in
equal tranches in March 2017, 2018 and 2019, subject to continued employment. This change, permitted by the Remuneration Policy, has been made in order to more
closely align the value delivered to participants under this award with the value created for shareholders over the same period.
It is expected that the level of award in March 2015 will be 200% and 175% of salary for Mr Pearce and Mr Bates, respectively. The performance targets will be the same
as the financial targets for the 2015 annual bonus, being 67% on EBITDA and 33% on revenue.
PSA
A PSA award will be made in March 2015, and it is expected that the level of award will be 200% of salary for Mr Pearce and 175% for Mr Bates.
The PSA awards for 2015 will vest after three years based upon three performance conditions, measured over the three years to 31 December 2017. For 2015 the
performance conditions include:
a. TSR performance vs. the FTSE 50-150 (excluding investment trusts);
b. EBITDA growth; and
c. An additional metric reflecting the long-term nature of the Company’s business model. The Committee believes that it is important for management to be
additionally focused on delivering critical strategic programmes, e.g. the launch of new satellites, ground infrastructure and business models as part of their
long-term incentive plan which in turn will drive long-term shareholder value creation. 40% of the total award is currently linked to this metric. The Committee
considers that the emphasis on strategic objectives may increase over time and remains open to considering other financial metrics for future awards.
STRATEGIC REPORT
GOVERNANCE
79
Performance in relation to the 2015 awards will be measured over the period 1 January 2015 to 31 December 2017, and the targets are as follows.
Performance measure
Weighting (% of maximum award)
Performance targets
3-year TSR vs. FTSE 50-150
30%
30%
Strategic objectives
40%
Median:
30% vesting
Less than 4%:
nil vesting
10%:
100% vesting
The key areas are:
> Global Xpress: completion of the successful launch and market entry for the
next generation of Inmarsat-5 satellites
> S-band: putting in place all key building blocks of the aviation leadership
programme business case which will support material revenues beyond 2017
> L-band: sustaining L-band revenues despite migration of services from L-band
to Global Xpress Ka-band, through a re-orientation, expansion and
globalisation of L-band services
Achievement against strategic objectives will be considered as a whole.
There are specific objectives within each area, and further details of the
objectives and key achievements will be disclosed in detail at the end of the
performance period.
NON-EXECUTIVE DIRECTOR FEES
Fees paid as follows for a NED:
Amount
Basic fee
Chairman of Audit Committee
Chairman of Remuneration Committee
Chairman of Nominations Committee
Committee membership (per Committee)
Deputy Chairman/SID (inclusive of all additional Committee fees)
Chairman
£51,500
£10,000
£10,000
£5,000
£4,500
£96,908
£295,000
Fees will next be reviewed in July 2015 and any increases will be for the decision of the Board, excluding the Non-Executive Directors. The Non-Executive Chairman
also receives international healthcare cover (£14,555 in 2014).
TOTAL SHAREHOLDER RETURN
The following graph shows the Company’s performance over the last six years, measured by total shareholder return on a holding in the Company’s shares compared
to a hypothetical holding of shares in the FTSE 350 index (excluding investment trusts). The FTSE 350 index has been selected as it provides a view of our performance
against a broad equity market index. We have also shown the median of the FTSE50-150 (excluding investment trusts), because it aligns with the TSR comparator
group used under the PSA and closely matches the market size of our business. Note, the constituents of the FTSE 50-150 are based on the companies ranked 50th
to 150th as at 31 December 2008, excluding those that have delisted since. The date of selection of constituents within that group will be updated from time to time
to ensure it appropriately reflects our FTSE 50-150 TSR comparator group.
250
200
• Inmarsat plc
• FTSE 350 xIT Index
• Median of FTSE 50-150 xIT
150
100
50
Source: Bloomberg
0
2008
2009
2010
2011
2012
2013
2014
80
CEO SIX-YEAR EARNINGS HISTORY (AUDITED)
The total remuneration of the Chief Executive for each of the previous six financial years is shown in the following table. The information shows single figure
remuneration, the annual bonus outcome as a percentage of the maximum, the short-term share award and the long-term share award vesting outcomes as a
percentage of the maximum.
For the years 2009, 2010 and 2011, the Chairman and Chief Executive was the same individual reflecting a salary for the combined role: Andrew Sukawaty (’AS’).
Rupert Pearce (‘RP’) became Chief Executive on 1 January 2012.
Year ended
AS
RP
AS
RP
AS
RP
AS
RP
Single remuneration
figure £m
Annual bonus outcome
(% of max)
BSP conversion
(% of max monetary value)
PSP award vesting
(% of max)
31 Dec 2009
31 Dec 2010
31 Dec 2011
£2.218m
–
98%
–
100%
–
100%
–
£3.661m
–
100%
–
100%
–
100%
–
£2.819m
–
84%
–
98%
–
Nil
–
31 Dec 2012
31 Dec 2013
£3.850m(2)
£1.596m
–
91%
–
100%
–
Nil
£2.511m(2)
£1.434m
–
83%
–
73%
–
Nil
31 Dec 2014(1)
£3.882m(2)
£2.352m
96%
100%
54.47%
(1) Please refer to page 74 for detail of the single remuneration figure.
(2) We are only required to show the single figure remuneration for each year for the Chief Executive but, as in 2012, 2013 and 2014, Mr Sukawaty was the highest paid Director as Executive
Chairman, we have therefore also included the single figure for his remuneration.
PERCENTAGE CHANGE IN CEO REMUNERATION
The data for other employees relates to the average pay across staff based in the UK, which is deemed to be the most appropriate employee group. The data is based
on all UK employees, including Executive Directors (apart from the CEO) and the senior management team.
Change in remuneration from 2013 to 2014
CEO
2014
(£000)
Salary
Taxable benefits(1)
Short term incentives(2)
Total
484.8
1.9
1,298
1,785.7
2013
(£000)
451.0
1.9
962.8
1,415.7
Other UK employees
%
change
7.5%
0%
34.9%
79.28%
%
change
1% (3)
1.2%
18.6%
5.98%
(1) Taxable benefits represents healthcare benefits; for the CEO it is different compared to the single remuneration figure as the amount excludes costs for staff entertainment.
(2) Represents the annual bonus payment for the financial year ended 31 December 2014 plus the monetary value of the shares to be awarded under the Bonus Share Plan corresponding
to the financial year ended 31 December 2014.
(3) The number of employees is based on those who were in employment for the whole year.
(4) The reporting periods are 1 January to 31 December 2013 and 2014.
(5) Effective July 2014, salary increases of approximately 7% to the eligible Other UK employee workforce were awarded.
RELATIVE IMPORTANCE OF SPEND ON PAY
To assist in understanding the relative importance of spend on pay, the below shows remuneration for all employees in comparison to distributions to shareholders
(dividends) and other significant spend. Capital expenditure has been presented as a measure of significant spent as it shows the investment being made in the
Company’s future growth.
US$m
700
656.6
560
420
424.7
280
244.8
237.3
2013
2014
140
0
Total employee pay(1)
(3% decrease)
202.6
213.1
2013
2014
Dividends and share buy-back
(5% increase)
2013
2014
Capital expenditure on an accruals basis
(35% decrease)
(1) Total employee pay takes account of the impact of the disposal of the retail energy operations offset by the acquisition of Globe Wireless resulting in a lower average headcount.
STRATEGIC REPORT
GOVERNANCE
81
DIRECTORS’ SHAREHOLDING (AUDITED)
The table below shows the shareholding of each Director against their respective shareholding requirement as at 31 December 2014 based on a share price of £7.99
as at 31 December 2014:
Shares held
Rupert Pearce
Tony Bates
Andrew Sukawaty(3)
Simon Bax
Sir Bryan Carsberg
Stephen Davidson
Kathleen Flaherty
Janice Obuchowski
Abe Peled
John Rennocks
Robert Ruijter
Hamadoun Touré
Admiral James Ellis Jr (Rtd)
Shares held
as at
31 Dec 2013
Shares held
as at
31 Dec 2014
Unvested and
subject to
deferral
623,376
–
812,274
3,000
16,327
1,500
3,073
–
7,000
–
43,326
–
–
21,727
660,252
–
937,228
7,000
16,327
1,500
3,073
–
7,000
10,000
44,291
–
–
N/A
164,569
–
474,900
Unvested and
subject to
performance
conditions
330,851
–
682,132
Shareholding
required
(% salary)
500%
–
500%
Current(1)
shareholding
(% salary)
Requirement
met?
1,269%
–
1,834%
Yes
No(2)
Yes
(1) Includes the unvested and subject to deferral shares under the BSP/BSA.
(2) Mr Bates joined the Company in June 2014. The shareholding guideline of 5x salary is to be achieved over a 5-7 period.
(3) Mr Sukawaty became Non-Executive Chairman with effect from 1 January 2015. Mr Sukawaty will receive share from share awards made to him when he was Executive Chairman
which will vest on a time pro-rata basis and subject to the performance conditions being met.
(4) The unvested and subject to performance conditions includes 100% of the PSP/PSA award made in 2012 of which 54.47% will vest in 2015 as performance conditions have been
partially met.
(6) There were no changes in Directors’ interests from 31 December 2014 to 5 March 2015.
(7) Several of our Non-Executive Directors have share interests in excess of 1x salary, although there is no formal shareholding requirement.
DIRECTORS’ INTERESTS IN SHARES IN INMARSAT LONG-TERM INCENTIVE PLANS AND ALL-EMPLOYEE PLANS (AUDITED)
This information is accurate as at 31 December 2014. Mr Medlock left the Company on 3 January 2014 and any shares that had not vested lapsed upon his departure.
INMARSAT 2005 SHARESAVE SCHEME
Andrew Sukawaty
Rupert Pearce
Options
held at
1 January
2014
Granted
during
the year
Exercised
during
the year
Options
held at
31 December
2014
1,960
1,960
–
–
–
–
1,960
1,960
Date from
which
exercisable
Expiry
date
£4.59 February 2016
£4.59 February 2016
July 2016
July 2016
Option price
per share
Mr Sukawaty’s Sharesave options were granted to him when he was Executive Chairman. Mr Sukawaty is entitled to continue making savings to the UK Sharesave scheme as he continues to
fulfil the criteria of the scheme rules to do so.
82
BONUS SHARE AWARDS
Share awards
held at 1 January
2014 or date of
appointment
Awarded
during
the year
Vested
during
the year(2)
Share awards
held at
31 December
2014
Award
Price
Vesting
date
Andrew Sukawaty
Share award made in March 2011(3)
34,941
–
–
34,941
–
£6.07
–
4,777
117,691
122,468
£4.549
250,973
–
6,791
83,657
174,107
£6.50
–
171,369
6,956
–
178,325
£6.89
Fully vested in 2014
March 2014 and
March 2015
March 2014, March 2015
and March 2016
and March 2017
235,382
Rupert Pearce
16,111
–
–
16,111
–
£6.07
41,486
–
841
20,743
21,584
£4.549
98,640
–
2,668
32,880
68,428
£6. 50
–
71,649
2,908
–
74,557
£6.89
Reinvested
dividends
during
the year(1)
Fully vested in 2014
March 2014 and
March 2015
May 2014, March 2015
and March 2016
and March 2017
Mr Bates joined the Company on 2 June 2014. A monetary award under the 2014 BSA was granted to him on 10 June 2014. Messrs Sukawaty and Pearce received monetary awards in
March 2014. The 2014 BSA share awards will be converted in full as the performance conditions have been met. Please see pages 75 and 76 for the monetary value to be converted to shares.
(1) The number of shares subject to the award increases by the number of shares that the Executive Director could have purchased with the value of dividends they would have received
on their award, based on the share price on the ex-dividend date.
(2) On 12 March 2014, Mr Sukawaty and Mr Pearce sold sufficient shares to cover tax and national insurance and retained the balance at a price of £6.86 per share, representing
a monetary value of vested shares of £857,184 and £252,969 respectively.
(3) The shares vest in three equal instalments and the last instalment vested in 2014.
(4) The shares vest in three equal instalments, the second instalment vested in 2014 and the remaining instalment will vest in March 2015.
(5) The shares vest in three equal instalments with the final instalment in March 2016.
(6) The shares vest in three equal instalments with the final instalment in March 2017.
Mr Sukawaty, as Non-Executive Chairman, remains entitled to receive the shares when they vest as they were awarded and earned while he was an Executive Director.
PERFORMANCE SHARE PLAN
Andrew Sukawaty
Award made in 2011(2)
Award made in 2013
Award made in 2014
Rupert Pearce
Award made in 2013
Award made in 2014
Tony Bates
Award made in 2014
Share awards
held at
1 January
2014
Awarded
during
the year
100,612
304,663
201,262
–
–
–
–
176,207
42,986
135,462
98,435
–
–
Vested
during
the year
Lapsed
during
the year
Share awards
held at
31 December
2014
–
–
–
–
–
–
–
–
100,612
–
–
–
–
304,663
201,262
176,207
£6.11
Lapsed
£4.54 March 2015
£6.87 March 2016
£6.98 March 2017
–
–
–
96,954
–
–
–
–
–
–
–
–
42,986
–
–
–
–
135,462
98,435
96,954
£6.11
Lapsed
£4.54
May 2015
£6.87 March 2016
£6.98 March 2017
58,919
–
–
–
58,919
Reinvested
dividends
during
the year(1)
Award
Price
£7.64
Vesting
date
June 2017
(1) The number of shares subject to the award increases by the number of shares that the Executive Director could have purchased with the value of dividends they would have received on
their award, based on the share price on the ex-dividend date.
(2) No amount of the 2011 PSP vested in 2014 as performance conditions were not met.
(3) 54.47% of the 2012 PSP will vest in 2015. Please see page 76 for further details.
APPROVAL
This report was approved by the Board of Directors on 5 March and signed on its behalf by:
STEPHEN DAVIDSON
5 March 2015
STRATEGIC REPORT
GOVERNANCE
83
DIRECTORS’ RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
RESPONSIBILITY STATEMENT
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the Group
financial statements in accordance with International Financial Reporting
Standards (‘IFRSs’) as adopted by the European Union and Article 4 of the IAS
Regulation and have also chosen to prepare the Parent Company financial
statements under IFRSs as adopted by the European Union. Under company
law the Directors must not approve the accounts unless they are satisfied that
they give a true and fair view of the state of affairs of the Company and of the
profit or loss of the Company for that period. In preparing these financial
statements, International Accounting Standard 1 requires that Directors:
> the financial statements, prepared in accordance with International Financial
Reporting Standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings included in
the consolidation taken as a whole;
> the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that they face; and
> the Annual Report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary
for shareholders to assess the Company’s performance, business model
and strategy. This statement has been given in accordance with IFRS
accounting standards.
> properly select and apply accounting policies;
> present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
> provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
entity’s financial position and financial performance; and
> make an assessment of the Company’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Company’s website. Legislation in the
United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
By order of the Board
RUPERT PEARCE
DIRECTOR
5 March 2015
84
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF INMARSAT PLC
OPINION ON THE FINANCIAL STATEMENTS OF INMARSAT PLC
In our opinion:
> the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2014 and of the
Group’s profit for the year then ended;
> the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by
the European Union;
> the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied
in accordance with the provisions of the Companies Act 2006; and
> the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
The financial statements comprise the Group Income Statement, Group Statement of Comprehensive Income, Group and Parent Company Balance
Sheet, Group and Parent Company Statement of Changes in Equity, Group and Parent Company Cash Flow Statement and the related notes 1 to 40.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as
regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
GOING CONCERN
As required by the Listing Rules we have reviewed the Directors’ statement on page 83 that the Group is a going concern. We confirm that:
> we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate; and
> we have not identified any material uncertainties that may cast significant doubt on the Group’s ability to continue as a going concern.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a
going concern.
OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources
in the audit and directing the efforts of the engagement team.
Risk
How the scope of our audit responded to the risk
Change in segmental reporting
In light of the internal business restructuring (discussed in note 5 to the financial
statements), and the change of internal and external reporting to view the business on
a ‘vertical’ basis, there is a risk that the operating segments of the business are not
appropriately identified and disclosed in accordance with IFRS 8.
We have tested the operating effectiveness of controls around the segmental classification of revenues
by tracing a sample of newly activated SIM cards from activation, through the segmentation process, into
the financial systems.
Furthermore, there is a risk that revenues and expenses may not be appropriately
allocated to the correct operating segments.
Given the substantial changes to the way the business is managed and the way
management information is reported internally (and hence the way financial results
are presented within the Annual Report), there is a risk that inappropriate allocation
could lead to material disclosure deficiencies.
We have reviewed and challenged assumptions applied in allocating revenues and costs between the new
operating segments, including in particular the conclusion that it is not feasible to allocate the satellite
and related assets to any of the other segments.
We met with each of the individual business unit heads to corroborate their understanding of the historical
results and position of their respective reporting segments.
We have compared the internal management information as presented to the Chief Operating Decision
Maker (‘CODM’) to the segmental disclosures made in note 5 to the financial statements to determine
whether the requirements of IFRS 8 have been complied with.
The assessment of the carrying amount of goodwill and intangible assets
We have carried out procedures to assess the design and implementation of the controls over the
In accordance with IAS 36, management is required to carry out an annual impairment impairment of goodwill process.
review in respect of goodwill and intangible assets with indefinite useful lives. Included
in intangibles is $422.1m of goodwill.
We have challenged the assumptions used by management in undertaking their impairment review
(as described in notes 2 and 4 to the financial statements).
Impairment reviews are complex, contain highly judgemental assumptions, and are
predicated on management’s assessment of future profitability.
We considered whether management’s impairment review methodology is compliant with IAS 36.
Our audit work focused on the assumptions used in the impairment model, including specifically:
There is a risk that the assumptions used in the impairment reviews are inappropriate,
and hence that the wrong conclusion may be drawn in respect of whether an
> Considering management’s assessment and determination of the Group’s CGUs;
impairment is required.
> Reviewing management’s methodology for reallocation of goodwill and the calculations used to
support the revised allocation, along with recalculating the allocation.
The changes to the Group’s reporting structure has led management to reassess the
> Agreeing the underlying cash flow projections to Board approved forecasts and corroborating the
cash generating units (‘CGUs’), and assets including goodwill have been reallocated
trends by evaluating recent performance, and comparing to external market expectations to
accordingly as a result. Judgement is required in order to ensure that these assets
understand the drivers of the forecasts;
have been allocated to the correct CGU, and that any such allocation has been
> Comparison of growth rates against those achieved historically and external market data
performed on a reasonable and consistent basis.
where available;
> Benchmarking of growth and discount rates to comparator companies; and
> Determining whether the required disclosures have been provided;
Accounting for the acquisition of Globe Wireless LLC
The acquisition of the assets of Globe Wireless LLC was completed for a
consideration of $45.2m on 2 January 2014.
The acquisition accounting for this transaction involves a number of judgements.
There is a risk that the assumptions used in the purchase price allocation exercise
are inappropriate, and hence the valuation of acquired assets and liabilities could
be incorrect.
>
>
>
>
We gained an understanding of the transaction and its rationale through discussions with
management and reading of the Asset Purchase Agreement.
We have engaged our internal valuation specialists to review the methodology and assumptions
employed in the valuation of acquired intangible assets and liabilities, including determining whether
the assumptions used for the purpose of valuing acquired intangible assets were consistent with what
a market participant would use.
We obtained the underlying cash flow forecasts and reviewed and challenged the assumptions used to
assess the reasonableness of the forecasts.
We have reviewed the calculations and disclosures made in note 29 to the financial statements to
determine whether these are compliant with IFRS 3.
STRATEGIC REPORT
GOVERNANCE
Risk
How the scope of our audit responded to the risk
Capitalisation of development costs
The Group capitalises significant internal labour costs, external costs and qualifying
borrowing costs in respect of major ongoing capital projects including the Global
Xpress programme, ‘Europasat’ and a number of IT systems.
We have tested the operating effectiveness of controls in respect of the processes and procedures which
govern the capitalisation of development costs. Furthermore, we have carried out substantive testing in
relation to each element of capitalised costs including inspecting supporting evidence for a sample of the
capitalised costs, understanding the nature of the costs capitalised and considering whether they are
consistent with the originally approved budget.
There is a risk that costs which do not meet the criteria for capitalisation in
accordance with IAS 16, IAS 38 and IAS 23 are inappropriately recorded on the
balance sheet rather than expensed as incurred.
85
In relation to borrowing costs we obtained the supporting calculations, verified the inputs to the
calculation, including testing a sample of cash payments, tested the mechanical accuracy of the model,
and reviewed the model to determine whether the borrowing costs for completed projects are no longer
being capitalised.
We have met with the project leaders for the most financially significant capital projects, which account
for 87% of current year capital expenditure to corroborate the project status, the feasibility of completion
and performance against budgets, including investigating any derivations from budget.
Accounting for the LightSquared Cooperation Agreement
The Group continues to hold a material balance of deferred revenue in respect
of the LightSquared Cooperation Agreement. Risks exist in relation to revenue and
cost recognition for the agreement, as the accounting is reliant on management
judgement, and there is a high degree of uncertainty surrounding the continued
contractual relationship with LightSquared.
We have discussed the current commercial situation with respect to LightSquared with management and
challenged the basis of their assumptions to ensure that the previously adopted accounting treatment
continues to be appropriate, namely the continued deferral of $208.8m income in respect of
consideration previously received from LightSquared until there is certainty around whether the
Cooperation Agreement will be restarted and the related services will be provided.
In respect of the $38.8m of previously deferred Phase 1.5 income that was recognised in the Income
Statement in Q1, we have considered management’s treatment of this against their previously established
accounting policy.
In respect of the $17.5m payment due from LightSquared on 31 December 2014 (as discussed in note 20
to the financial statements), we have assessed management’s conclusion that this should not be
recognised until the cash is received against the guidance outlined in IAS 18.
We have conducted substantive testing of the associated revenue and costs recognised in respect of
this arrangement.
Working capital provisions
The Group has implemented new systematic provisioning policies in respect of
inventory and trade receivables, as discussed in note 4 to the financial statements.
There is a risk that if the provisioning approach does not reflect the risk profile within
the underlying inventory and receivable populations, or if the provisioning policies
are not correctly and consistently applied, these working capital balances could be
materially misstated.
We have considered the appropriateness of the policy for the provision of doubtful receivables and
inventory obsolescence by:
> Critically assessing the new policy based on historic bad debt and inventory write-offs within
the Group;
> Understanding the design and implementation of controls in respect of conducting and reviewing
the output of the general provision calculations;
> Assessing the financial position of those counterparties for which a specific receivable provision
has been recognised in order to conclude on the reasonableness of these provisions;
> Performing substantive testing to determine the validity of the underlying data within the
general provision calculation;
> Mechanically recalculating the provisions based on the terms of the policy; and
> Meeting with Business Unit presidents to corroborate the Group’s expectation of sales of certain
inventory lines and financial health of Distribution Partners.
Last year our report included one other risk which is not included in our report this year in respect of uncertain tax positions. We have not highlighted
this significant audit risk given that there has been no significant change to these positions (other than the resolution of one of these cases) and we
have not directed significant time and resource in this area in comparison to the previous year.
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee discussed on pages 63
and 64.
Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an
opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above,
and we do not express an opinion on these individual matters.
OUR APPLICATION OF MATERIALITY
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating
the results of our work.
We determined materiality for the Group to be $11.2m (2013: $16.0m). This was calculated before 31 December 2014 and was based on 5% of
forecast adjusted profit before tax (2013: 5%), which resulted in approximately 5% of actual adjusted profit before tax (2013: 4%), and less than
1% (2013: less than 1%) of equity. Pre-tax profit has been adjusted to remove the impact of volatility arising from the LightSquared Cooperation
agreement (discussed in note 4 to the financial statements) and the one-off impact of the re-basing of the convertible bond (discussed in note
19 to the financial statements).
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $225,000 (2013: $320,000), as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure
matters that we identified when assessing the overall presentation of the financial statements.
86
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF INMARSAT PLC CONTINUED
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the
risks of material misstatement at the Group level. Based on that assessment, we focused our Group audit scope primarily on the audit work at five
operating locations, being the UK, Canada, Norway and two locations in the USA. All of these were subject to a full scope audit. These five locations
represent the principal business locations and account for 100% of the Group’s net assets, revenue and profit before tax.
They were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above.
Our audit work at these locations was executed at levels of materiality applicable to each individual entity which were lower than Group materiality
and calculated by reference to a proportion of Group materiality appropriate to the relative scale of the business concerned.
At the Parent Company level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there
were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit or audit
of specified account balances.
The Group audit team continued to follow a programme of planned visits that has been designed so that the Senior Statutory Auditor or a senior
member of the Group audit team visits each of the locations where the Group audit scope was focused at least once every two years and the most
significant of them at least once a year. In the current year we visited all of the financially significant components. For all components we include the
component audit partner in our team briefing, discuss their risk assessment, and review documentation of the findings from their work.
OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion:
> the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
> the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the financial statements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
ADEQUACY OF EXPLANATIONS RECEIVED AND ACCOUNTING RECORDS
Under the Companies Act 2006 we are required to report to you if, in our opinion:
> we have not received all the information and explanations we require for our audit; or
> adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches
not visited by us; or
> the Parent Company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
DIRECTORS’ REMUNERATION
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not been made or
the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns. We have nothing to report
arising from these matters.
CORPORATE GOVERNANCE STATEMENT
Under the Listing Rules we are also required to review the part of the Corporate Governance Statement relating to the Company’s compliance with 10
provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.
OUR DUTY TO READ OTHER INFORMATION IN THE ANNUAL REPORT
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the Annual Report is:
> materially inconsistent with the information in the audited financial statements; or
> apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or
> otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the
Directors’ Statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately
discloses those matters that we communicated to the Audit Committee which we consider should have been disclosed. We confirm that we have
not identified any such inconsistencies or misleading statements.
STRATEGIC REPORT
GOVERNANCE
87
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors. We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and
tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated
professional standards review team and independent partner reviews.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and
to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course
of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
STEPHEN GRIGGS FCA
(SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF DELOITTE LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
5 March 2015
88
CONSOLIDATED INCOME STATEMENT
(US$ in millions)
Revenues
Employee benefit costs
Network and satellite operations costs
Total net operating costs
EBITDA
Impairment losses
Share of profit of associates
Operating profit
Finance income
Finance expense
Income tax expense
Attributable to:
Equity holders
Non-controlling interest
Earnings per share (expressed in $ per share)
– Basic
– Diluted
Adjusted earnings per share (expressed in $ per share)
– Basic
– Diluted
Note
2014
2013
1,285.9
(237.3)
(205.7)
(174.1)
32.2
(584.9)
701.0
(291.8)
(1.2)
–
(1.3)
2.6
409.3
8.1
(75.1)
(67.0)
342.3
(1.2)
341.1
1,261.9
(244.8)
(235.6)
(162.9)
30.2
(613.1)
648.8
(232.0)
(0.1)
4.6
(185.2)
2.3
238.4
4.9
(54.2)
(49.3)
189.1
(86.5)
102.6
340.5
0.6
341.1
102.0
0.6
102.6
27
27
0.76
0.69
0.23
0.23
27
27
0.51
0.45
0.69
0.68
7
6
6
15
9
9
9
6
10
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(US$ in millions)
Other comprehensive income
Amounts subsequently reclassified to the Income Statement:
Gain on remeasurement of available-for-sale financial asset
Foreign exchange translation differences
Net (losses)/gains on cash flow hedges
Tax credited/(charged) directly to equity
Amounts not subsequently reclassified to the Income Statement:
Actuarial gains from pension and post-employment benefits
Tax charged directly to equity
Total other comprehensive income
Total comprehensive income
Attributable to:
Equity holders
Note
15
26
10
28
10
2014
2013
341.1
102.6
9.4
(0.6)
(12.7)
1.1
–
(0.2)
14.7
(3.6)
3.4
(0.6)
–
341.1
2.7
(0.6)
13.0
115.6
340.5
0.6
115.0
0.6
STRATEGIC REPORT
GOVERNANCE
89
CONSOLIDATED BALANCE SHEET
(US$ in millions)
Note
2014
2013
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments
Other receivables
Deferred income tax assets
Derivative financial instruments
13
14
15
17
22
32
2,649.4
799.6
10.8
24.4
26.7
–
3,510.9
2,495.9
781.1
32.7
21.6
21.3
3.6
3,356.2
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current income tax assets
Assets held for sale
16
17
18
22
32
33
Total assets
Liabilities
Current liabilities
Borrowings
Trade and other payables
Provisions
Current income tax liabilities
Liabilities directly associated with assets held for sale
204.4
305.4
28.4
8.5
1.4
32.9
581.0
4,091.9
144.3
277.0
27.7
11.6
9.2
42.8
512.6
3,868.8
19
20
21
22
32
33
118.1
474.9
3.4
81.3
5.0
–
682.7
399.1
515.7
4.3
100.2
0.5
19.0
1,038.8
Borrowings
Other payables
Provisions
Deferred income tax liabilities
19
20
21
22
1,987.0
25.6
27.2
186.3
2,226.1
2,908.8
1,183.1
1,558.0
26.2
23.9
174.1
1,782.2
2,821.0
1,047.8
24
0.3
687.6
56.9
66.7
371.1
1,182.6
0.5
1,183.1
0.3
687.4
56.9
62.9
240.0
1,047.5
0.3
1,047.8
Total liabilities
Net assets
Shareholders’ equity
Ordinary shares
Share premium
Equity reserve
Other reserves
Retained earnings
Equity attributable to shareholders
Total equity
The consolidated financial statements of the Group on pages 88 to 130 were approved by the Board of Directors on 5 March 2015 and were signed on
its behalf by:
RUPERT PEARCE
TONY BATES
90
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(US$ in millions)
Balance at
1 January 2013
Share options charge
Dividends paid
Transfer to liabilities
directly associated
with assets held
for sale
Comprehensive Income:
Profit for the period
Other comprehensive
income – before tax
Other comprehensive
income – tax
Balance at
31 December 2013
Issue of share capital
Dividends paid
Transfer to liabilities
directly associated
with assets held
for sale
Comprehensive Income:
Profit for the period
Other comprehensive
income – before tax
Other comprehensive
income – tax
Balance at
31 December 2014
Ordinary
share
capital
Share
premium
account
Equity
reserve
Share
option
reserve
Cash flow
hedge
reserve(2)
0.3
–
–
687.4
–
–
56.9
–
–
56.5
5.0
–
(2.5)
–
–
–
–
–
–
–
–
–
–
–
–
Noncontrolling
interest
Currency
reserve
Other
reserve(1)
Retained
earnings
0.6
–
–
0.4
–
–
(11.5)
3.5
–
336.7
1.6
(202.4)
–
–
–
–
–
–
–
–
–
–
102.0
0.6
102.6
–
–
14.7
–
–
2.7
–
17.2
–
–
–
(3.6)
–
–
–
(0.6)
–
(4.2)
0.3
–
–
–
687.4
–
0.2
–
56.9
–
–
–
61.5
1.0
–
–
8.6
–
–
–
0.6
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
340.5
0.6
–
–
–
–
(12.7)
9.4
–
3.4
–
(0.5)
–
–
–
–
2.5
(1.4)
–
(0.6)
–
0.5
0.3
687.6
56.9
62.5
(1.6)
8.6
0.5
1,183.1
(1) The other reserve relates to ordinary shares held by the employee share trust.
(2) Note 26.
Revaluation
reserve(2)
(0.2)
(0.6)
–
(0.4)
(8.0)
5.6
–
–
(2.4)
240.0
0.6
–
(212.8)
371.1
Total
1.1 1,125.9
–
10.1
(0.2) (202.6)
(1.2)
(1.2)
0.3 1,047.8
–
7.2
–
0.2
(0.3) (213.1)
(0.1)
(0.1)
341.1
STRATEGIC REPORT
GOVERNANCE
91
CONSOLIDATED CASH FLOW STATEMENT
(US$ in millions)
Cash flows from operating activities
Interest received
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Additions to capitalised development costs and other intangibles
Acquisition of subsidiaries and other investments
Proceeds on disposal of assets
Net cash used in investing activities
Cash flows from financing activities
Repayment of EIB Facility
Drawdown of Ex-Im Bank Facilities
Repayment of Ex-Im Bank Facilities
Redemption of Senior Notes due 2017
Gross issuance proceeds of Senior Notes due 2022
Interest paid on borrowings
Arrangement costs of financing
Net proceeds from the issue of ordinary shares
Other financing activities
Net cash used in financing activities
Foreign exchange adjustment
Net increase/(decrease) in cash and cash equivalents
At the beginning of the year
Net increase/(decrease) in cash and cash equivalents
At the end of the year
Comprising:
Cash at bank and in hand
Short-term deposits with original maturity of less than three months
Bank overdrafts
Note
23
29
33
12
19
19
19
19
19
19
24
16
16
16
16
2014
2013
653.4
0.9
(9.5)
644.8
614.8
2.6
(20.3)
597.1
(345.9)
(29.0)
(30.8)
(46.2)
27.5
(424.4)
(516.1)
(35.1)
(29.3)
(3.2)
–
(583.7)
(212.6)
(44.1)
106.9
(13.4)
(882.8)
991.9
(89.0)
(13.8)
0.2
0.3
(156.4)
(0.4)
63.6
(200.5)
(44.0)
145.9
–
–
–
(100.6)
(5.0)
–
(0.3)
(204.5)
(0.2)
(191.3)
140.8
63.6
204.4
332.1
(191.3)
140.8
40.7
163.7
–
204.4
50.4
93.9
(3.5)
140.8
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Inmarsat plc (the ‘Company’ or, together with its subsidiaries, the ‘Group’) is a company incorporated in the United Kingdom and domiciled in England
and Wales. The address of its registered office is 99 City Road, London EC1Y 1AX, United Kingdom. The nature of the Group’s operations and its
principal activities are set out in note 5.
The Company’s ticker symbol on the London Stock Exchange is ISAT.L.
2. PRINCIPAL ACCOUNTING POLICIES
BASIS OF PREPARATION
The principal accounting policies adopted in the preparation of the consolidated financial statements for the years ended 31 December 2014 and
2013 (the ‘consolidated financial statements’) are set out below.
These financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) adopted by the European
Union (‘EU’) and therefore the Group’s financial statements comply with Article 4 of the EU International Accounting Standards (‘IAS’) regulation and
with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been
prepared under the historical cost convention except for the revaluation of certain financial assets and financial liabilities, as described later in these
accounting policies.
The Group has a robust and resilient business model, strong free cash flow generation and is compliant with all covenants. As a consequence and
despite the continuing uncertain economic climate, the Directors believe that the Group is well-placed to manage its business risks successfully.
After considering current financial projections and facilities available and after making enquiries, the Directors have a reasonable expectation that
the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, Inmarsat plc
continues to adopt the going concern basis in preparing the consolidated financial statements.
The Group’s business activities, together with factors likely to affect its future development, performance and position are set out in the Strategic
Report which encompasses the Chairman’s Review, the Chief Executive’s Review and the Financial Review on pages 1 to 49. The financial position of
the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 38 to 43. In addition, notes 3, 31
and 32 to the financial statements include the Group’s objectives, policies and processes for managing its financial risk management objectives,
its capital, details of its financial instruments and hedging activities, and its exposure to credit and liquidity risks.
BASIS OF ACCOUNTING
The preparation of the consolidated financial statements in conformity with IFRS requires management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the Balance Sheet dates and the
reported amounts of revenue and expenses during the reported period. Although these estimates are based on management’s best estimate of the
amounts, events or actions, the actual results ultimately may differ from those estimates. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4.
In addition, the following Standards and Interpretations, as adopted by the EU, are effective for the first time in the current financial year and have
been adopted by the Group with no significant impact on its consolidated results or financial position:
> IFRS 10 – Consolidated Financial Statements;
> IFRS 11 – Joint Arrangements;
> IFRS 12 – Disclosures of Interests in Other Entities;
> IAS 27 (revised) – Separate Financial Statements (2011);
> IAS 28 (revised) – Investments in Associates and Joint Ventures (2011);
> IAS 32 (amended) – Financial Instruments;
> IAS 36 (amended) – Impairment of Assets;
> IAS 39 (amended) – Financial Instruments; and
> IFRIC 21 – Levies (effective for financial years beginning on or after 1 January 2014).
At the date of approval of these financial statements, the following Standards and Interpretations which have not been applied in these financial
statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
> IAS 19 (amended) – Employee Benefits;
> IFRS 10 (amended) – Consolidated Financial Statements;
> IFRS 11 (amended) – Joint Arrangements; and
> IFRS 15 – Revenue from Contracts with Customers.
The Group is currently assessing the impact of the above new Standards and Interpretations on its results, balance sheet and cash flows.
STRATEGIC REPORT
GOVERNANCE
93
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its domestic and overseas subsidiary undertakings. Subsidiary
undertakings include all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a
shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether the Group controls another entity.
The results of subsidiary undertakings established or acquired during the period are included in the Consolidated Profit and Loss Account from the
date of establishment or acquisition of control. The results of subsidiary undertakings disposed of during the period are included until the date of
disposal. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those
used by the Group. All transactions, balances, income and expenses with and between subsidiary undertakings have been eliminated on consolidation.
On the acquisition of a company or a business, fair values reflecting conditions at the date of acquisition are attributed to the identifiable separable
assets, liabilities and contingent liabilities acquired. Where the fair value of the total consideration, both paid and deferred, exceeds the fair value of
the identifiable separable assets, liabilities and contingent liabilities acquired, the difference is treated as purchased goodwill. Fees and similar
incremental costs incurred directly in making the acquisition are recorded in the Income Statement as incurred, in line with IFRS 3. Where there is a
revision of the estimated fair value attributed to the assets or liabilities of an acquired subsidiary which occurs after the end of the measurement
period, acquisition-related adjustments are recognised in the Income Statement.
Where the deferred consideration is payable in cash, the liability is discounted to its present value. Where the deferred consideration is contingent
upon future trading performance, an estimate of the present value of the deferred consideration payable is made. The contingent deferred
consideration is reassessed annually and any gain or loss on remeasurement is recorded in the Income Statement.
Investments in associates are initially recognised at cost. Subsequent to acquisition the carrying value of the Group’s investment in associates
includes the Group’s share of profit of associates, less dividends paid by the associate to the Group, and less any impairment losses. The income
statement reflects the Group’s share of profit after tax of the associate.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling
interests consist of the amount of those interests at the date of the original business combination and the non-controlling interests’ share of changes
in equity since the date of the original combination.
FOREIGN CURRENCY TRANSLATION
a) Functional and presentation currency
The functional currency of the Company and all of the Group’s subsidiaries and the presentation currency of the Group is the US Dollar, as the
majority of operational transactions are denominated in US Dollars.
The hedged rate between US Dollar and Pound Sterling for 2014 for the Group’s Sterling operating expenditures was US$1.54/£1.00 (2013:
US$1.57/£1.00).
b) Transactions and balances
Transactions not denominated in the functional currency of the respective subsidiary undertakings of the Group during the year have been translated
using the spot rates of exchange ruling at the dates of the transactions. Differences on exchange arising on the settlement of the transactions
denominated in currencies other than the respective functional currency are recognised in the Income Statement.
Monetary assets and liabilities not denominated in the functional currency of the respective subsidiary undertaking of the Group have been
translated at the spot rates of exchange ruling at the end of each month. Differences on exchange arising from the translation of monetary assets
and liabilities denominated in currencies other than the respective functional currency are recognised in equity to the extent that the foreign
exchange exposure is hedged while the remaining differences are recognised in the Income Statement.
94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. PRINCIPAL ACCOUNTING POLICIES CONTINUED
FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the relevant instrument and
derecognised when it ceases to be a party to such provisions. Financial instruments are initially measured at fair value. Subsequent measurement
depends on the designation of the instrument. Non-derivative financial assets are classified as trade receivables, other receivables, accrued income,
short-term deposits or cash and cash equivalents. They are stated at amortised cost using the effective interest method, subject to reduction for
allowances for estimated irrecoverable amounts. For interest-bearing assets, their carrying value includes accrued interest receivable. In the Cash
Flow Statement, cash and cash equivalents are shown net of bank overdrafts, which are included as current borrowings in liabilities on the Balance
Sheet. Non-derivative financial liabilities are classified as borrowings, trade payables, other liabilities and accruals and stated at amortised cost using
the effective interest method. For borrowings, their carrying value includes accrued interest payable, as well as unamortised issue costs.
The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational and
financing activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes.
However, derivatives that do not qualify for hedge accounting under IAS 39 are accounted for as trading instruments. Derivatives are initially
recognised and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value. The gain or loss on
remeasurement is taken to the Income Statement except where the derivative is a designated cash flow hedging instrument.
In order to qualify for hedge accounting, the Group is required to document in advance the relationship between the item being hedged and the
hedging instrument. The Group is also required to demonstrate that the hedge will be highly effective on an ongoing basis. This effectiveness testing
is reperformed at each period end to ensure that the hedge remains highly effective.
Gains or losses on cash flow hedges that are regarded as highly effective are recognised in equity. Where the forecast transaction results in a financial
asset or liability, gains or losses previously recognised in equity are reclassified to the Income Statement in the same period as the asset or liability
impacts income. If the forecasted transaction or commitment results in future income or expenditure, gains or losses deferred in equity are
transferred to the Income Statement in the same period as the underlying income or expenditure. The ineffective portions of the gain or loss on the
hedging instrument are recognised immediately in the Income Statement.
Where a hedge no longer meets the effectiveness criteria, any gains or losses deferred in equity are only transferred to the Income Statement when
the committed or forecasted transaction is recognised in the Income Statement. However, where the Group has applied cash flow hedge accounting
for a forecasted or committed transaction that is no longer expected to occur, the cumulative gain or loss that has been recorded in equity is
transferred to the Income Statement. When a hedging instrument expires or is sold, any cumulative gain or loss existing in equity at that time remains
in equity and is recognised when the forecast transaction is ultimately recognised in the Income Statement.
REVENUE RECOGNITION
Mobile satellite communications services revenue results from utilisation charges that are recognised as revenue in the period during which the
services are provided. Deferred income attributable to mobile satellite communications services or subscription fees represents the unearned
balances remaining from amounts received from customers pursuant to prepaid contracts. Revenue from the sale of prepaid credit is deferred until
such time as the customer uses the airtime, or the credit expires. The Group also enters into minimum spend contracts with customers, known as
‘take-or-pay’ contracts, whereby customers agree to purchase a minimum amount of mobile satellite communications services over a fixed period.
Any unused portion of the prepaid contracts or the take-or-pay contracts (‘breakage’) is recognised in revenue in line with service provision when
reasonable assurance as to the breakage amount exists, or otherwise when the contract expires. Mobile satellite communications services lease
revenues are recorded on a straight-line basis over the term of the contract concerned, which is typically between one and 12 months, unless another
systematic basis is deemed more appropriate.
Revenue also includes income from spectrum coordination agreements, services contracts, other communications services and income from the
sale of terminals and other communication equipment. Revenue from spectrum coordination agreements is recognised using the percentage of
completion or straight-line approach depending on the underlying terms of the agreement (see note 4(e)). Revenue from service contracts is
recognised as the service is provided. Sales of terminals and other communication equipment are recognised when the risks and rewards of ownership
are transferred to the purchaser.
The Group offers certain products and services as part of multiple deliverable arrangements. Multi-deliverable arrangements are divided into
separate units of accounting provided, 1) the deliverable has a standalone value to the customer if it is sold separately, and 2) the fair value of the
item can be objectively and reliably determined. Consideration for these items is measured and allocated to each separate unit based on their relative
fair values and the relevant revenue recognition policies are applied to them.
STRATEGIC REPORT
GOVERNANCE
95
EMPLOYEE BENEFITS
Wages, salaries, social security contributions, accumulating annual leave, bonuses and non-monetary benefits are accrued in the year in which the
associated services are performed by the employees of the Group.
Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee
accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it has demonstrably committed to
either terminate the employment of current employees or to provide termination benefits, as a result of an offer made to encourage voluntary
redundancy.
The Group recognises liabilities relating to defined benefit pension plans and post-employment benefits in respect of employees. The Group’s net
obligations in respect of defined benefit pension plans and post-employment benefits are calculated separately for each plan by estimating the
amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to
determine its present value, and the fair value of any plan assets is deducted. The calculations are performed by qualified actuaries using the
projected unit credit method.
All actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are
immediately recognised in the Statement of Comprehensive Income.
The Group also operates a number of defined contribution pension schemes. Pension costs for the defined contribution schemes are charged to the
Income Statement when the related employee service is rendered.
The Group issues equity-settled share options and awards to employees. Equity-settled share option awards are measured at fair value at the date of
the grant. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of
shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions.
CURRENT TAX
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it
excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
DEFERRED INCOME TAX
Deferred income tax is provided, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in
a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not
accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet
date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary
deductible differences or tax loss carry forwards can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal
of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when
they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
RESEARCH AND DEVELOPMENT
Research expenditure is expensed when incurred. Development expenditure is expensed when incurred unless it meets criteria for capitalisation.
Development costs are only capitalised once the technical feasibility and commercial viability of a business case has been demonstrated and they
can be measured reliably. Capitalised development costs are amortised on a straight-line basis over their expected useful economic life.
96
PROPERTY, PLANT AND EQUIPMENT
Space segment assets
Space segment assets comprise satellite construction, launch and other associated costs, including ground infrastructure. Expenditure charged
to space segment projects includes invoiced progress payments, amounts accrued appropriate to the stage of completion of contract milestones,
external consultancy costs and direct internal costs. Internal costs, comprising primarily staff costs, are only capitalised when they are directly
attributable to the construction of an asset. Progress payments are determined on milestones achieved to date together with agreed cost escalation
indices. Deferred satellite payments represent the net present value of future payments dependent on the future performance of each satellite and
are recognised in space segment assets when the satellite becomes operational. The associated liability is stated at its net present value and included
within borrowings. These space segment assets are depreciated over the life of the satellites from the date they become operational and are placed
into service. Borrowing costs attributable to the construction of assets which take a substantial period of time to get ready for intended use
(‘qualifying assets’) are added to the costs of those assets.
Assets in the course of construction
These assets will be transferred to space segment assets and depreciated over the life of the satellites or services once they become operational and
placed into service. No depreciation has yet been charged on these assets.
Other fixed assets
Other fixed assets are stated at historical cost less accumulated depreciation.
Depreciation
Depreciation is calculated to write-off the historical cost less residual values, if any, of fixed assets, except land, on a straight-line basis over the
expected useful lives of the assets concerned. The Group selects its depreciation rates and residual values carefully and reviews them annually to take
account of any changes in circumstances. When setting useful economic lives, the principal factors the Group takes into account are the expected
rate of technological developments, expected market requirements for the equipment and the intensity at which the assets are expected to be used.
Asset retirement obligations
The fair value of legal obligations associated with the retirement of tangible property, plant and equipment is recognised in the financial statements in
the period in which the liability is incurred. Upon initial recognition of a liability for an asset retirement obligation, a corresponding asset retirement
cost is added to the carrying amount of the related asset, which is subsequently amortised to income over the remaining useful life of the asset.
Following the initial recognition of an asset retirement obligation, the carrying amount of the liability is increased for the passage of time by applying
an interest method of allocation to the liability with a corresponding accretion cost reflected in operating expenses.
Revisions to either the timing or the amount of the original estimate of undiscounted cash flows are recognised each period as an adjustment to the
carrying amount of the asset retirement obligation.
Government grants
Government grants have been received in relation to the purchase and construction of certain assets. Government grants are deducted from the cost
of the relevant assets to arrive at the carrying amount. The grants are therefore recognised as income over the lives of the assets by way of a reduced
depreciation charge.
Gains and losses on disposals of tangible and intangible assets
Gains and losses on disposals are determined by comparing net proceeds with the carrying amount. These are included in the Income Statement.
Intangible assets
Intangible assets comprise goodwill, patents, trademarks, software, terminal development and network access costs, spectrum rights, orbital slots
and licences, customer relationships and intellectual property.
Intangible assets arise from separate purchases and acquisitions as part of business combinations. In addition, internally-generated intangible assets
are recognised only if all the following conditions are met:
> an asset is created that can be identified;
> it is probable that the asset created will generate future economic benefits; and
> the development cost of the asset can be reliably measured.
Development costs directly relating to the development of new services are capitalised as intangible assets once a business case has been
demonstrated as to technical feasibility and commercial viability.
Intangible assets with a finite useful life are amortised on a straight-line basis over the life of the asset and the amortisation period and method are
reviewed each financial year. Intangible assets with an indefinite useful life are reviewed annually for impairment.
STRATEGIC REPORT
GOVERNANCE
97
Impairment reviews
At each balance sheet date, the Group reviews the carrying amounts of assets that are subject to amortisation and depreciation to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, an impairment review is conducted.
Intangible assets with an indefinite life are tested for impairment at least annually and whenever there is an indication that the asset may be impaired.
Impairment testing involves a comparison of the carrying amount of the asset with its recoverable amount, which is the higher of fair value less costs
to sell and value in use. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable
amount of the cash-generating unit (‘CGU’) to which the asset belongs. Fair value less costs to sell is calculated by reference to the amount at which
the asset could be disposed of. Value in use is calculated by discounting the expected future cash flows obtainable as a result of the asset’s continued
use, including those resulting from its ultimate disposal, at a market-based discount rate on a pre-tax basis.
CGUs are identified as groups of assets, liabilities and associated goodwill that generate cash flows that are largely independent of other cash flow
streams. The assets and liabilities include those directly involved in generating the cash flows and, where a reliable and consistent basis exists, an
appropriate proportion of corporate assets.
An impairment loss is recognised in the Income Statement whenever the carrying amount of an asset exceeds its recoverable amount. The carrying
amount will only be increased where an impairment loss recognised in a previous period for an asset other than goodwill either no longer exists or has
decreased, up to the amount that it would have been had the original impairment not occurred. Any impairment to goodwill recognised in a previous
period is not reversed.
Investments
Available-for-sale investments are recorded at fair value with gains and losses recorded directly in equity. Investments in equity instruments that do
not have quoted market prices in active markets are recorded at cost. Investments are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount may not be fully recoverable.
Leases
Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases by the lessee.
Rentals payable under operating leases are charged to the Income Statement on a straight-line basis over the term of the lease.
Non-current assets and disposal groups held for sale
When the carrying value of non-current assets and disposal groups will be recovered through a sale transaction rather than through continuing
usage, they are classified as held for sale. This condition is regarded as met only when the sale is highly probable and the disposal group is available
for immediate sale in its present condition. Assets held for sale are stated at the lower of their carrying amount and fair value less costs to sell.
Disposal groups are groups of assets and liabilities to be disposed of together as a group in a single transaction. They are recognised as held for sale
at the reporting date and are separately disclosed as current assets and liabilities on the Balance Sheet. Any amortisation or depreciation ceases
when an asset is classified as held for sale. Measurement differences arising between the carrying amount and fair value less cost of disposal are
treated as impairment charges and separately disclosed.
Available-for-sale financial assets classified as held for sale are remeasured to fair value with the resulting gains or losses recorded through the
revaluation reserve. These amounts are subsequently reclassified to profit or loss at the time of sale.
Interest and finance costs
Interest on borrowings and other financial liabilities is recognised in the Income Statement using the effective interest method.
The finance costs recognised in respect of the convertible borrowings includes the accretion of the liability component to the amount that will be
payable on redemption.
Inventories
Inventories are stated at the lower of cost (determined by the weighted average cost method) and net realisable value. Allowances for obsolescence
are recognised in other operating costs when there is objective evidence that inventory is obsolete.
Cash and cash equivalents, measured at fair value, include cash in hand, deposits held on call with banks and other short-term highly-liquid
investments with original maturities of three months or less. Bank overdrafts are shown as current liabilities within borrowings on the Balance Sheet.
Provisions
Provisions, other than in respect of pension and post-employment benefits, are recognised when the Group has a legal or constructive obligation to
transfer economic benefits arising from past events and the amount of the obligation can be estimated reliably. Provisions are not recognised unless
the outflow of economic benefits to settle the obligation is more likely than not to occur.
98
Borrowings
Borrowings are initially recognised as proceeds received, net of transaction and arrangement costs incurred. Borrowings are subsequently stated at
amortised cost. Transaction and arrangement costs of borrowings and the difference between the proceeds and the redemption value are recognised
in the Income Statement over the life of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months
after the Balance Sheet date.
Convertible Bonds
Convertible Bonds that can be converted into share capital at the option of the holder are considered and accounted for as compound financial
instruments, consisting of a liability component and an equity component in accordance with the substance of the contractual arrangement. At the
date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible debt
instrument. The embedded call and put options, since they are closely linked to the underlying instrument, are valued and recognised as part of the
liability. The total liability is recognised on an amortised cost basis until extinguished on conversion or maturity of the bonds. The equity component
initially brought to account is determined by deducting the amount of the liability component from the fair value of the compound instrument as a
whole and represents the option for the holder to convert the bonds into equity of the Company. This conversion option is recognised and included
directly in equity and is not subsequently remeasured. Issue costs are apportioned between the liability and equity components based on their
respective carrying amounts at the date of issue.
On conversion, the liability is reclassified to equity and no gain or loss is recognised in the Income Statement. Where the convertible borrowing is
redeemed early or repurchased in a way that does not alter the original conversion privileges, the consideration paid is allocated to the liability and
equity components. The consideration relating to the equity component is recognised in equity and the amount of gain or loss relating to the liability
element is recognised in the Income Statement.
Earnings before interest, tax, depreciation and amortisation (‘EBITDA’)
EBITDA is a non-GAAP performance measure used by analysts and investors, and is defined for the purposes of our reporting as profit before interest,
taxation, depreciation and amortisation, loss on disposal of assets, acquisition-related adjustments, impairment losses and share of profit of associates.
3. FINANCIAL RISK MANAGEMENT
FINANCIAL RISK FACTORS
The Group’s operations and significant debt financing expose it to a variety of financial risks that include the effects of changes in debt market prices,
foreign currency exchange rates, credit risks, liquidity risks and interest rates. The Group has in place a risk management programme that seeks to
limit adverse effects on the financial performance of the Group by using forward exchange contracts to limit exposure to foreign currency risk and to
limit the impact of fluctuating interest rates by minimising the amount of floating rate long-term borrowings.
The Board of Directors has delegated to a subcommittee, the Treasury Review Committee, the responsibility for setting the financial risk management
policies applied by the Group. The policies are implemented by the treasury department which receives regular reports from the operating companies
to enable prompt identification of financial risks so that appropriate actions may be taken. The treasury department has a policy and procedures
manual that sets out specific guidelines for managing foreign exchange risk, interest rate risk and credit risk (see note 32). The management of the
Group does not hold or issue derivative financial instruments for speculative or trading purposes.
(A) MARKET RISK
(i) Foreign exchange risk
The functional currency of Inmarsat plc is the US Dollar. The vast majority of the Group’s long-term borrowings are denominated in US Dollars, the
majority of its revenue is earned in US Dollars and the vast majority of capital expenditure is denominated in US Dollars, which are therefore not
subject to risks associated with fluctuating foreign currency rates of exchange. However, approximately 24% (2013: 25%) of the Group’s operating
costs are denominated in Pounds Sterling. The Group operates internationally, resulting in approximately 6% and 46% of revenue and expenditure,
respectively, being denominated in currencies other than the US Dollar. The Group’s exposures therefore need to be carefully managed to avoid
variability in future cash flows and earnings caused by volatile foreign exchange rates.
The foreign currency hedging policy of the Group is to economically hedge a minimum of 50% of anticipated foreign currency exposure in operating
expenses for the next 12 months and up to a maximum of 100% for the next three years on a rolling basis.
As at 31 December 2014 it is estimated that:
> a hypothetical 1% inflation of the hedged US Dollar/Sterling exchange rate (US$1.54/£1.00 to US$1.56/£1.00) would have decreased the 2014 profit
before tax by approximately $1.1m (2013: $1.0m);
> a hypothetical 1% deflation in the US Dollar/Sterling and a 1% deflation in the US Dollar/Euro foreign currency spot rates at 31 December 2014 would
have decreased equity by $1.0m and $0.1m, respectively (2013: $1.6m and $0.1m, respectively), primarily as a result of the changes in fair value of
derivative instruments designated as cash flow hedges.
Management believes that a 1% sensitivity rate provides a reasonable basis upon which to assess expected changes in foreign exchange rates.
STRATEGIC REPORT
GOVERNANCE
99
(ii) Price risk
The Group is not exposed to significant equity securities price risk or commodity price risk.
(B) INTEREST RATE RISK
Given the Group has no significant interest-bearing assets (except cash and cash equivalents and non-current other receivables), income and
operating cash flows are substantially independent of changes in market interest rates. Interest rate risk arises from long-term borrowings. Borrowings
issued at variable rates expose the Group to cash flow interest rate risk. The EIB Facility is at a variable rate whilst the Senior Notes due 2022, the
Convertible Bonds and the Ex-Im Facilities are at fixed rates.
As at 31 December 2014, if interest rates on net borrowings changed by 1%, with all other variables held constant, the Group’s profit after tax for the
year would have been impacted by $0.3m (2013: $2.2m). This is primarily due to the Group’s exposure to movements on interest rates on its variable
rate borrowings and cash and cash equivalents. The sensitivity analysis has been determined based on the exposure to interest rates for both
derivatives and non-derivative instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the liability
outstanding at each balance sheet date was outstanding for the whole year. Management believes that a 1% sensitivity rate provides a reasonable
basis upon which to assess expected changes in interest rates.
(C) CREDIT RISK
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Financial instruments
that potentially subject the Group to a concentration of credit risk consist of cash and cash equivalents, short-term deposits, trade receivables, other
receivables, accrued income and derivative financial instruments. The credit risk on liquid funds (cash and cash equivalents and short-term deposits)
and derivative financial instruments is limited because the counterparties are highly rated financial institutions.
The maximum exposure to credit risk as at 31 December is:
(US$ in millions)
Trade receivables, other receivables and accrued income
Total credit risk
Note
2014
2013
16
17
32
204.4
242.1
1.4
447.9
144.3
239.2
12.8
396.3
The Group’s average age of trade receivables as at 31 December 2014 (excluding the impact of LightSquared) was approximately 66 days (as at
31 December 2013: 61 days). At 31 December 2014, $174.5m (2013: $140.5m) of trade receivables were not yet due for payment. No interest is charged
on trade receivables until the receivables become overdue for payment. Thereafter, interest may be charged at varying rates depending on the terms
of the individual agreements.
The Group has credit evaluation, approval and monitoring processes intended to mitigate potential credit risks, and utilises both internal and
third-party collection processes for overdue accounts. The Group maintains provisions for potential credit losses that are assessed on an ongoing
basis. As a result of acquiring the assets of Globe Wireless in 2014 and the alignment of provisioning policies for uncollectible trade receivables
across the Group, and assessments of the general trading environment, the provision for uncollectible trade receivables increased to $18.4m as
at 31 December 2014 (2013: $10.5m).
For 2014, one (2013: one) distribution partner comprised approximately 12.2% (2013: 15.2%) of the Group’s total revenues. This same customer
comprised 20.3% (2013: 24.0%) of the Group’s trade receivables balance as at 31 December 2014. No other customer accounted for 10% or more
of the Group’s revenue for 2014 or 2013, or for 10% of the Group’s accounts receivable as at 31 December 2014 or 31 December 2013.
The ageing profile of overdue trade receivables net of provisions and revenue adjustments is:
(US$ in millions)
Between 1 and 30 days overdue
Between 31 and 120 days overdue
Over 120 days overdue
As at 31 December
Note
2014
2013
17
40.2
16.4
0.2
56.8
28.4
30.7
8.1
67.2
(D) LIQUIDITY RISK
The Group is exposed to liquidity risk with respect to its contractual obligations and financial liabilities. Prudent liquidity risk management implies
maintaining sufficient cash and short-term deposits and the availability of funding through an adequate amount of committed credit facilities.
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets
and liabilities.
100
3. FINANCIAL RISK MANAGEMENT CONTINUED
The available liquidity of the Group as at 31 December is:
(US$ in millions)
Available but undrawn borrowing facilities(1)
Total available liquidity
Note
2014
2013
16
19
204.4
990.3
1,194.7
144.3
906.5
1,050.8
(1) Relates to the Senior Credit Facility and Ex-Im Bank Facilities (see note 19).
The Directors believe the Group’s liquidity position is more than sufficient to meet its needs for the foreseeable future.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
The preparation of the consolidated financial statements requires management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue
and expenses during the reported period. Actual results could differ from those estimates. The more significant estimates are discussed below:
(A) ESTIMATED IMPAIRMENT OF GOODWILL
The Group annually undertakes tests to determine whether goodwill has suffered any impairment, in accordance with the accounting policy stated in
note 2. The carrying amounts of goodwill and intangible assets are given in note 14.
During 2014, the Group reorganised its operating segments to reflect the way the business is being viewed by the Chief Operating Decision Maker
(‘CODM’) (see note 5). As a result of the reorganisation, the lowest levels for which separate cash flows are identifiable are the operating segments.
As required under IFRS, goodwill was allocated to the new CGUs using the relative value approach. Corporate assets are allocated to the CGUs where a
reasonable and consistent allocation basis exists. Where corporate assets could not be allocated on a reasonable and consistent basis they were
included within the carrying amount of the total Group and compared to the recoverable amount of the total Group.
Key assumptions used to calculate the recoverable amount of the CGUs were as follows:
(US$ in millions)
Maritime
Enterprise
Aviation
US Government
Global Government
Total Group
Allocated Goodwill
Pre-tax
Discount rate
Long-term growth
rate
215.5
54.8
46.4
50.6
54.8
422.1
9.1%
9.1%
9.1%
9.1%
9.1%
8.9%
2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
As at 31 December 2013, the Group’s CGUs were Inmarsat Global, Stratos, Segovia and Ship Equip. The carrying value of goodwill allocated to the
Stratos, Segovia and Ship Equip CGUs was fully impaired. The carrying amount of goodwill allocated to the Inmarsat Global CGU was $407.4m.
Recoverable amount
The recoverable amount of each CGU is based on the value in use, which is determined using cash flow projections derived from financial plans
approved by management covering a five-year period. For certain significant projects currently under development, a five-year period is not
indicative of the long-term performance as operations may not have reached maturity. For these projects, the Group extends the plan for an
additional five-year period. They reflect management’s expectations of revenue, EBITDA growth, capital expenditure, working capital and operating
cash flows, based on past experience and future expectations of business performance. Cash flows beyond the five-year period have been
extrapolated using perpetuity growth rates, as outlined below.
Growth rates
A long-term growth rate has been applied to extrapolate the cash flows into perpetuity. The growth rate has been determined using long-term
industry growth rates and management’s conservative expectation of future growth.
Discount rates
The discount rates reflect the time value of money and are derived from the Group’s weighted average cost of capital, adjusted for the risk associated
with the CGUs. The risk premium, when compared with the Group discount rate, was consistent across each of the CGUs given the similarities in
exposure to economic and competitive conditions.
Goodwill impairment
No impairment was identified in respect of the goodwill allocated to the CGUs in 2014. In 2013, an impairment charge of $144.5m was recognised in
respect to goodwill. This related to the impairment of goodwill originally recognised by the Group on the acquisition of the Stratos, Segovia and Ship
Equip businesses (impairment of $76.8m, $34.2m and $33.5m, respectively).
In addition, during 2013, $9.4m of goodwill impairment losses were recognised in relation to a correction made to depreciation in 2013 relating to
prior periods in the Stratos CGU. This resulted in the carrying value of the Stratos CGU being increased above the estimated recoverable amount of
the Stratos CGU at 31 December 2012 and therefore a further impairment charge was recognised based on the revised carrying amount of the CGU at
31 December 2012. In addition, a further $5.9m of goodwill impairment losses were recognised in relation to the Stratos CGU following an impairment
review conducted prior to reclassification of certain assets as held for sale during 2013 (see note 33).
STRATEGIC REPORT
GOVERNANCE
101
(B) OTHER SIGNIFICANT IMPAIRMENT LOSSES
During 2014, impairment losses related to property plant and equipment, intangible assets and other were $0.9m, $0.3m, and $0.1m, respectively.
Following the 2013 goodwill impairment review, $17.8m of impairment losses were recognised in relation to customer relationships attributed
to the Segovia CGU. This was to ensure that the estimated value in use of the CGU was reflected in the financial statement for the year ended
31 December 2013.
In addition, in the year ended 31 December 2013, tangible fixed assets were impaired by $20.5m and other intangible assets (excluding goodwill) were
impaired by $1.1m, following an adjustment to the carrying value of the retail energy assets being disposed of in the RigNet transaction to write them
down to their fair value less costs to sell prior to their classification as held for sale assets.
(C) PENSION ARRANGEMENTS AND POST-EMPLOYMENT BENEFITS ASSUMPTIONS
The weighted average discount rate used to calculate the pension and post-employment benefits liabilities was 3.74% (2013: 4.72%) (see note 28).
(D) INCOME TAX
The calculation of the Group’s current and deferred tax balances, including potential liabilities or assets, necessarily involves a degree of estimation
and judgement in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax
authority, or, as appropriate, through a formal legal process. Issues can, and often do, take a number of years to resolve. The amounts recognised or
disclosed are derived from the Group’s best estimation and judgement. However, the inherent uncertainty regarding the outcome of these means
eventual realisation could differ from the accounting estimates and therefore impact the Group’s results and cash flows. In addition, a contingent
liability has been disclosed for the year ended 31 December 2014 in respect of arrangements which were entered into in prior periods (see note 35).
(E) REVENUE IN RESPECT OF THE LIGHTSQUARED COOPERATION AGREEMENT
In December 2007, Inmarsat and LightSquared LP, Skyterra (Canada) Inc. and LightSquared Inc. (together ‘LightSquared’) entered into a
Cooperation Agreement for the efficient use of L-band spectrum over North America. The Cooperation Agreement was segregated into phases and
designed to enable and support the deployment of an ATC network by LightSquared in North America. To date total payments of $578.0m have been
received under the Cooperation Agreement, including $31.6m in 2014 (2013: $nil). The Group has, thus far, recognised $369.2m of revenue and
$23.4m of operating costs under all phases of the agreement. For the year ended 31 December 2014, the Group recognised $75.4m of revenue and
$0.2m of operating costs, in respect of all phases (year ended 31 December 2013: $12.3m and $3.3m, respectively).
On 31 March 2014, LightSquared elected to restart Phase 2 of the Cooperation Agreement and in connection with this election notice a payment
of $5.0m was received and recognised as revenue. As a result of the election, LightSquared has recommenced quarterly payments to Inmarsat.
On 2 January 2015, Inmarsat issued a default notice to LightSquared indicating the $17.5m payment due 31 December 2014 had not been received in
accordance with the quarterly payment schedule. As at 31 December 2014, no revenue has been recognised in respect of the amount owing from
LightSquared, as the Group’s policy is to not recognise revenue when there is significant uncertainty of receiving payment.
In connection with the Group’s accounting for different phases of the Cooperation Agreement, the accounting method considered most appropriate
to the individual phase, including the percentage of completion method and straight-line method in the case of both revenues and costs has been
used. Where the percentage of completion method was used, we have had to measure the number of man-hours undertaken against an estimate of
the total man-hours required to complete the phase or activity. Similarly, we have measured costs incurred against an estimate of the total costs
required to complete the phase or activity. The key area of estimation uncertainty relates to the Directors’ estimates of the total time/costs that will
be incurred and the Directors’ estimate of the percentage of completion of the time and costs that the Group has incurred.
(F) PROVISION FOR UNCOLLECTABLE TRADE RECEIVABLES
As a result of uncertainties inherent in business activities, the Group estimates its required provision for uncollectable trade receivables at the end of
each period. The estimate is based on the Group’s judgement using the latest information available; the Group’s provision for uncollectable trade
receivables at 31 December 2014 is $18.7m (2013: $10.5m).
(G) ALLOWANCE FOR OBSOLESCENCE OF INVENTORIES
The Group maintains allowances for obsolescence against old or slow-moving inventories. The estimate is based on the Group’s judgement using the
latest information available; the Group’s allowance for obsolescence of inventories at 31 December 2014 is $15.1m (2013: $3.5m).
(H) CAPITALISATION OF SPACE SEGMENT ASSETS AND ASSOCIATED BORROWING COSTS
The key judgements involved in the capitalisation of space segment assets and associated borrowings costs are:
> whether the capitalisation criteria of the underlying IFRSs have been met;
> whether an asset is ready for use and as a result further capitalisation of costs should cease and depreciation should commence; and
> whether an asset is deemed to be substantially complete and as a result capitalisation of borrowing costs should cease.
102
5. SEGMENTAL INFORMATION
During the year ended 31 December 2014, the Group revised its operating segments to reflect the way the business is being viewed by the CODM.
The revised operating segments are based on a vertical market presentation and are now aligned to five market-facing Business Units, being:
> Maritime, focusing on worldwide commercial maritime services;
> Enterprise, focusing on worldwide energy, industry, media, carriers, and M2M services;
> Aviation, focusing on commercial aviation services;
> US Government, focusing on US civil and military government services; and
> Global Government, focusing on worldwide civil and military government services.
These five Business Units are supported by ‘Central Services’ which includes satellite operations and backbone infrastructure, corporate
administrative costs, and all other income that is not directly attributable to the individual Business Units. The Group has aggregated the US
Government and Global Government operating segments into one reporting segment, as the segments meet the criteria for aggregation under IFRS.
Therefore, the Group’s reportable segments are Maritime, Enterprise, Aviation, Government and Central Services.
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 2. Segment profit represents
the profit earned by each segment without allocation of central costs, investment revenue, finance costs and income tax expense.
BUSINESS SEGMENTS:
The tables below represent segmental information based on the revised basis with 2013 restated accordingly.
2014
(US$ in millions)
Revenue
MSS and other
LightSquared
Total revenue
Net operating costs
EBITDA
Impairment losses
Other
Operating result
Income tax expense
Capital expenditure
Depreciation
Amortisation of intangible assets
Maritime(1)
595.6
–
595.6
(145.2)
450.4
(35.6)
–
–
414.8
Government
319.9
–
319.9
(103.5)
216.4
(9.3)
–
–
207.1
Enterprise
166.7
–
166.7
(64.6)
102.1
(0.2)
–
–
101.9
35.3
24.5
11.1
5.6
2.8
6.5
3.3
0.2
–
Maritime
Government
Enterprise
Aviation
Central Services
101.1
–
101.1
(13.9)
87.2
(2.1)
–
–
85.1
27.2
75.4
102.6
(257.7)
(155.1)
(244.6)
(1.3)
1.4
(399.6)
48.3
2.0
0.1
332.2
190.6
54.0
Aviation
Central Services
Total
1,210.5
75.4
1,285.9
(584.9)
701.0
(291.8)
(1.3)
1.4
409.3
(67.0)
342.3
(1.2)
341.1
424.7
220.1
71.7
(1) Includes Globe Wireless from 1 January 2014 (see note 29).
2013 (restated)
(US$ in millions)
Revenue
MSS and other
LightSquared
Total revenue
Net operating costs
EBITDA
Impairment losses(1)
Other
Operating result
Income tax expense
Capital expenditure
Depreciation
524.8
–
524.8
(108.3)
416.5
(25.5)
–
–
391.0
31.3
19.3
6.2
408.3
–
408.3
(140.4)
267.9
(10.6)
–
–
257.3
4.9
3.0
7.6
221.6
–
221.6
(106.0)
115.6
(3.6)
–
–
112.0
6.5
3.4
0.2
73.4
–
73.4
(6.2)
67.2
(2.1)
–
–
65.1
21.5
12.3
33.8
(252.2)
(218.4)
(190.2)
(185.2)
6.8
(587.0)
2.5
2.0
0.1
611.4
137.5
52.7
Total
1,249.6
12.3
1,261.9
(613.1)
648.8
(232.0)
(185.2)
6.8
238.4
(49.3)
189.1
(86.5)
102.6
656.6
165.2
66.8
(1) Impairment losses in 2013 relate primarily to goodwill and customer relationship intangibles of the former Inmarsat Solutions segment and the Stratos, Segovia and Ship Equip CGUs and have
been allocated entirely to the Central Services reporting segment for comparative purposes.
STRATEGIC REPORT
GOVERNANCE
103
GEOGRAPHICAL SEGMENTS:
The Group mainly operates in the geographic areas shown in the table below. The home country of the Group is the United Kingdom, with its head
office and central operations located in London.
Revenues are allocated to countries based on the billing address of the customer. For wholesale customers, this is the distribution partner who
receives the invoice for the service, and for retail customers this is the billing address of the customer for whom the service is provided.
Assets and capital expenditure are allocated based on the physical location of the assets.
2014
(US$ in millions)
United Kingdom
Rest of Europe
North America
Asia and Pacific
Rest of the world
Unallocated (2)
Revenue
82.4
476.9
391.2
282.7
52.7
–
1,285.9
2013
Non-current
segment
assets(1)
799.2
619.0
755.8
68.9
0.1
1,267.9
3,510.9
Revenue
Non-current
segment
assets(1)
94.4
424.3
438.5
254.7
50.0
–
1,261.9
774.5
266.1
1,006.1
32.9
0.1
1,272.9
3,352.6
(1) In line with IFRS 8, ‘Operating Segments’, non-current segment assets exclude derivative financial instruments.
(2) Unallocated items relate to satellites which are in orbit.
6. PROFIT BEFORE INCOME TAX
Costs are presented by the nature of the expense to the Group. Network and satellite operations costs comprise costs to third parties for network
service contracts, operating lease rentals and services. A further breakdown of employee benefit costs is given in note 7.
Profit before income tax is stated after charging the following items:
(US$ in millions)
Depreciation of property, plant and equipment
Impairment of goodwill
Impairment of customer relationships
Impairment of software
Impairment of services, equipment, fixtures and fittings
Impairment of non-current other receivables
Operating lease rentals
Land and buildings
Services equipment, fixtures and fittings
Cost of inventories recognised as an expense
Research and development costs expensed
Note
2014
2013
13
14
4
14
14
13
220.1
71.7
–
–
0.3
0.4
0.6
165.2
66.8
144.5
18.1
0.8
20.5
1.3
20.3
1.7
59.2
20.0
20.2
1.5
67.0
14.4
The total remuneration paid to the Group’s Auditor and other member firms of Deloitte Touche Tohmatsu Limited is analysed below:
(US$ in millions)
Audit fees:
Audit of the Parent Company
Audit of subsidiaries
Audit-related fees:
Audit-related assurance services
Total audit and audit-related fees
Fees for other services:
Tax compliance services
Tax advisory services
Other services(1)
Total fees for other services
Total Auditor’s remuneration
2014
2013
0.2
1.2
1.4
0.2
1.1
1.3
0.2
1.6
0.3
1.6
–
0.9
0.1
1.0
2.6
0.2
0.7
0.4
1.3
2.9
(1) Other services in 2014 relate to a corporate financing transaction, while services in 2013 relate to system implementation costs which have subsequently been capitalised on the Balance Sheet.
At 31 December 2014, the Group had contractually committed to $nil of services to be completed in the 2015 financial year (31 December 2013:
$0.2m for services to be completed in the 2014 financial year).
104
7. EMPLOYEE BENEFIT COSTS (INCLUDING THE EXECUTIVE DIRECTORS)
(US$ in millions)
Wages and salaries
Social security costs
Share options charge (including employers’ National Insurance contribution)
Defined contribution pension plan costs
Defined benefit pension plan costs(1)
Post-employment benefits costs(1)
Total employee benefit costs
Note
28
28
2014
2013
200.8
16.5
11.3
7.0
1.4
0.3
237.3
201.1
16.6
15.7
7.6
3.6
0.2
244.8
(1) Defined benefit pension plan costs and post-employment benefits costs include the service cost and gain on curtailment in 2014 (see note 28).
EMPLOYEE NUMBERS
The average monthly number of people (including the Executive Directors) employed during the year by category of employment:
By activity:
Operations
Sales and marketing
Development and engineering
Administration
By segment:
Maritime
Government
Enterprise
Aviation
Central Services
2014
2013
784
300
156
352
1,592
767
323
163
369
1,622
356
181
70
28
957
1,592
201
188
242
14
977
1,622
8. EXECUTIVE AND NON-EXECUTIVE DIRECTORS’ REMUNERATION
The Group’s Executive and Non-Executive Directors’ are the key management personnel of the business. Details of the total amounts earned during
the year are as follows:
(US$ in millions)
2014
2013
Short-term employee benefits
Company contributions to defined contribution pension schemes(1)
Share-based payments(2)
6.0
0.2
6.7
12.9
4.8
0.2
6.3
11.3
(1) Includes the value of cash allowances taken by two Executive Directors in lieu of pension contributions.
(2) Includes employers National Insurance or other social security contributions.
On 2 June 2014, Tony Bates joined the Company as Chief Financial Officer and was appointed as an Executive Director, effective the same date.
Rick Medlock resigned from his position as Chief Financial Officer and as an Executive Director of Inmarsat plc on 3 January 2014.
The Annual Report on Remuneration contains full disclosure of Directors’ remuneration on pages 73 and 74. As at 31 December 2014, none of the
Directors (2013: two) were members of the Group’s defined contribution pension plan. One Director is a member of the US 401k Plan (2013: one).
STRATEGIC REPORT
GOVERNANCE
105
9. NET FINANCE EXPENSE
(US$ in millions)
Interest on Senior Notes and credit facilities
Interest on Convertible Bonds
Interest rate swaps
Unwinding of discount on deferred satellite liabilities
Amortisation of debt issue costs
Amortisation of discount on Senior Notes due 2022
Redemption premium on Senior Notes due 2017
Other interest
Finance expense
Less: Amounts capitalised in the cost of qualifying assets
Total finance expense
Bank interest receivable and other interest
Net amortisation of premium on Senior Notes due 2017
Pension and post-employment liability finance income
Total finance income
2014
2013
84.3
(18.3)
–
1.4
16.0
0.5
32.8
0.3
117.0
(41.9)
75.1
1.5
6.0
0.6
8.1
67.0
84.9
29.5
8.0
1.8
8.2
–
–
0.9
133.3
(79.1)
54.2
3.3
1.5
0.1
4.9
49.3
During 2014, a non-recurring credit of $48.5m was recognised to interest expense on the Convertible Bonds arising from an adjustment to the
expected maturity date, due to the expiration of the bond holder’s redemption option in November 2014.
Borrowing costs capitalised in the cost of qualifying assets during the year are calculated by applying a capitalisation rate to expenditures on such
assets. The average interest capitalisation rate for the year was 3.79% (2013: 7.51%).
10. INCOME TAX EXPENSE
Income tax expense recognised in the Income Statement:
(US$ in millions)
Current tax expense:
Current year
Adjustments in respect of prior periods
Total current tax credit/(expense)
Deferred tax expense:
Origination and reversal of temporary differences
Adjustments due to reduction in the UK corporation tax rate
Total deferred tax expense
Total income tax expense
2014
2013
(41.0)
45.9
4.9
(30.0)
(46.7)
(76.7)
(18.1)
9.3
2.7
(6.1)
(1.2)
(29.9)
(3.1)
23.2
(9.8)
(86.5)
Of the total $55.2m adjustment in respect of prior periods recognised in 2014, $53.1m relates to the release of a provision for potential tax liabilities which had been recognised in 2013 in relation
to the Inmarsat-4 satellites. This provision is being released in 2014 as the HMRC review into this matter has now been concluded.
Reconciliation of effective tax rate:
(US$ in millions)
Profit before tax
Income tax at 21.50% (2013: 23.25%)
Differences in overseas tax rates
Adjustments due to reduction in the UK corporation tax rate
Impact of prior year losses not previously recognised
Impact of prior year temporary differences recognised (excluding losses)
Impact of current year losses not recognised
Non-deductible impact of goodwill impairment
Other non-deductible expenses/non-taxable income
Total income tax expense
2014
342.3
(73.6)
2.4
55.2
2.7
6.9
8.7
(1.7)
–
(1.8)
(1.2)
2013
189.1
(44.0)
0.6
(49.8)
23.2
4.3
–
(2.0)
(17.0)
(1.8)
(86.5)
106
10. INCOME TAX EXPENSE CONTINUED
Tax credited directly to equity:
(US$ in millions)
2014
2013
Current tax credit on share options
Deferred tax credit on share options
Total tax credited directly to equity
0.4
0.2
0.6
–
1.6
1.6
(US$ in millions)
2014
2013
Current tax credit on cash flow hedges
Deferred tax credit/(charge) relating to gains on cash flow hedges
Deferred tax charge on actuarial gains and losses from pension and post-employment benefits
Deferred tax charge on remeasurement of available for sale financial asset
Total tax credited/(charged) directly to other comprehensive income
0.2
2.3
(0.6)
(1.4)
0.5
–
(3.6)
(0.6)
–
(4.2)
Tax credited/(charged) directly to other comprehensive income:
11. NET FOREIGN EXCHANGE LOSSES/(GAINS)
(US$ in millions)
Pension and post-retirement liability
Total foreign exchange losses/(gains)
Note
2014
2013
28
(0.8)
2.7
1.9
(0.3)
(1.1)
(1.4)
12. DIVIDENDS
During 2014, the 2014 interim dividend of $83.7m (18.68 cents per ordinary share) and the 2013 final dividend of $129.1m (28.82 cents per ordinary
share) were paid to the Company’s shareholders. During 2013, the 2013 interim dividend of $79.6m (17.79 cents per ordinary share) and the 2012 final
dividend of $122.8m (27.45 cents per ordinary share) were paid to the Company’s shareholders.
A final dividend for the 2014 financial year of 30.26 cents per ordinary share, amounting to a total dividend of $135.6m, is to be proposed at the
Annual General Meeting on 6 May 2015. In accordance with IAS 10, these financial statements do not reflect this final dividend payable.
(US$ in cents)
Interim dividend paid per ordinary share
Final dividend per ordinary share
Total dividend per ordinary share
2014
2013
18.68
30.26
48.94
17.79
28.82
46.61
STRATEGIC REPORT
GOVERNANCE
13. PROPERTY, PLANT AND EQUIPMENT
(US$ in millions)
Cost:
1 January 2013
Additions
Acquisitions
Disposals
Transfers from assets in the course of construction
Transferred to assets held for sale
31 December 2013
Additions
Acquisitions
Disposals
Transfers from assets in the course of construction
31 December 2014
Accumulated depreciation:
1 January 2013
Charge for the year
Impairment losses(1)
Disposals
Transferred to assets held for sale
31 December 2013
Charge for the year
Impairment losses
Disposals
31 December 2014
Net book amount at 31 December 2013
Net book amount at 31 December 2014
Freehold
land and
buildings
107
Services,
equipment,
fixtures
and fittings
Space
segment
Assets in the
course of
construction
1,081.3
436.0
–
–
(290.9)
–
1,226.4
266.8
0.4
–
(413.7)
1,079.9
Total
16.4
1.7
–
–
–
(3.0)
15.1
1.7
0.1
–
–
16.9
286.6
21.3
0.4
(2.7)
2.4
(83.7)
224.3
18.6
2.7
(3.5)
–
242.1
2,075.8
157.9
–
(142.7)
288.5
(4.4)
2,375.1
85.3
–
(141.4)
413.7
2,732.7
3,460.1
616.9
0.4
(145.4)
–
(91.1)
3,840.9
372.4
3.2
(144.9)
–
4,071.6
(6.6)
(1.5)
–
–
1.0
(218.1)
(17.1)
(20.5)
2.3
71.9
(1,153.8)
(146.6)
–
142.4
1.6
–
–
–
–
–
(1,378.5)
(165.2)
(20.5)
144.7
74.5
(7.1)
(1.5)
–
–
(8.6)
8.0
8.3
(181.5)
(26.2)
(0.4)
2.8
(205.3)
42.8
36.8
(1,156.4)
(192.4)
–
140.5
(1,208.3)
1,218.7
1,524.4
–
–
–
–
–
1,226.4
1,079.9
(1,345.0)
(220.1)
(0.4)
143.3
(1,422.2)
2,495.9
2,649.4
(1) Relates to impairment of certain assets prior to their classification as held for sale.
Depreciation of property, plant and equipment is charged using the straight-line method over the estimated useful lives, as follows:
Space segment assets:
Satellites
Other space segment, including ground infrastructure
Fixtures and fittings, and services-related equipment
Buildings
13–15 years
5–12 years
3–15 years
20 years
At 31 December 2014 and 2013, the Group was carrying freehold land and buildings with a net book value of $nil. Had the freehold land and buildings
been revalued on a market basis, their carrying amount at 31 December 2014 would have been $12.5m (2013: $14.9m). Market valuation is based on
the Directors’ best estimates.
In 2014 the Group received government grants in relation to the purchase and construction of certain assets. The grants have been deducted from
the cost of the relevant asset to arrive at the carrying amount. Government grants received in 2014 were $1.7m (2013: $2.7m).
108
14. INTANGIBLE ASSETS
(US$ in millions)
Cost:
1 January 2013
Additions
Acquisitions
Transferred to assets
held for sale
31 December 2013
Additions
Acquisitions
Disposals
31 December 2014
Total
Goodwill
Trademarks
Software
Patents and
intellectual
property
765.4
–
1.2
49.9
–
–
194.3
27.8
–
14.7
–
–
130.1
7.0
–
386.8
–
1.2
16.8
4.9
–
1,558.0
39.7
2.4
–
766.6
–
14.7
–
781.3
–
49.9
–
0.6
(29.6)
20.9
–
222.1
20.0
7.0
–
249.1
–
14.7
–
–
–
14.7
–
137.1
22.2
–
–
159.3
–
388.0
–
16.0
(0.2)
403.8
(3.1)
18.6
10.1
–
(1.8)
26.9
(3.1)
1,597.0
52.3
38.3
(31.6)
1,656.0
(38.3)
(1.0)
–
(121.7)
(19.7)
(0.8)
(14.7)
–
–
(64.9)
(12.8)
–
(127.4)
(31.0)
(18.1)
(5.8)
(2.3)
–
(587.5)
(66.8)
(163.4)
Accumulated amortisation and impairment losses:
1 January 2013
(214.7)
Charge for the year
–
Impairment losses
(144.5)
Transferred to assets
held for sale
–
31 December 2013
Charge for the year
Disposals
Impairment losses
31 December 2014
Net book amount at
31 December 2013
Net book amount at
31 December 2014
Customer
relationships
Spectrum
rights,
orbital
slots and
licences
Terminal
development
and network
access costs
–
–
–
(14.7)
–
–
–
(14.7)
–
(77.7)
(10.6)
–
–
(88.3)
–
(176.5)
(30.7)
0.2
–
(207.0)
1.8
(6.3)
(4.4)
1.8
(0.3)
(9.2)
1.8
(359.2)
–
–
–
(359.2)
(39.3)
(1.3)
29.5
–
(11.1)
(142.2)
(24.7)
–
–
(166.9)
(815.9)
(71.7)
31.5
(0.3)
(856.4)
407.4
10.6
79.9
–
59.4
211.5
12.3
781.1
422.1
9.8
82.2
–
71.0
196.8
17.7
799.6
Goodwill represents the excess of consideration paid on an acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities
acquired at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Goodwill is allocated
to CGUs for the purpose of impairment testing. During 2013, the Group recorded impairment charges of $144.5m in respect of goodwill (see note 4(a)).
Trademarks are being amortised on a straight-line basis over their estimated useful lives, which are between 7 and 20 years.
The capitalised software includes the Group’s BGAN billing system and other internally developed operational systems and purchased software and is
being amortised on a straight-line basis over its estimated useful life of 3 to 5 years.
The Group capitalises development costs associated with the development and enhancement of user terminals and associated network access costs
as intangible assets. Costs directly relating to the Group’s BGAN family and GSPS services are being amortised over the estimated sales life of the
services which is 5 to 10 years. Amortisation of costs directly relating to GX network access will commence when the Inmarsat-5 satellites are operational.
Customer relationships acquired in connection with acquisitions are being amortised over the expected period of benefit of between 12 and 14 years,
using the straight-line method.
Spectrum rights acquired as a result of the acquisition of Stratos are being amortised over their useful lives of 5 years.
Orbital slots and licences relate to the Group’s Alphasat satellite, GX programme and other licences acquired, and each individual asset is reviewed to
determine whether it has a finite or indefinite useful life. Amortisation of the GX programme finite life assets will commence when the Inmarsat-5 satellites
are operational. Indefinite life assets will be tested annually for impairment.
STRATEGIC REPORT
GOVERNANCE
109
15. INVESTMENTS
(US$ in millions)
Investments held at cost
Interest in associates
Total investments
As at
31 December
2014
As at
31 December
2013
–
10.8
10.8
23.5
9.2
32.7
On 7 November 2014, the Group announced that it had entered into binding agreements to sell its 19% holding in SkyWave to ORBCOMM Inc. for total
proceeds of $32.9m. The investment is classified as an available for sale financial asset. As at 31 December 2014, the Group reclassified the investment in
SkyWave to assets held for sale and remeasured the asset to fair market value, recognising an after-tax gain of $8.0m in other comprehensive income.
Interest in associates represents the Group’s various investments which have been treated as associates and have all been accounted for using the
equity method of accounting. Individually, all of the investments in associates are deemed to be immaterial and as a result the associates’ assets,
liabilities, revenues and profits have not been presented.
Cash dividends received from the associates for the year ended 31 December 2014 total $1.1m (2013: $1.2m). The Group’s aggregate share of its
associates’ profits for the year is $2.6m (2013: $2.3m) and has been recognised in the Income Statement.
16. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash in hand, deposits held on call with banks, other short-term highly liquid investments with original maturities
of three months or less, and for the purposes of the Cash Flow Statement also includes bank overdrafts. Bank overdrafts are shown within borrowings
in current liabilities on the Balance Sheet.
(US$ in millions)
Short-term deposits with original maturity of less than three months
As at
31 December
2014
As at
31 December
2013
40.7
163.7
204.4
50.4
93.9
144.3
As at
31 December
2014
As at
31 December
2013
Cash and cash equivalents include the following for the purposes of the Cash Flow Statement:
(US$ in millions)
Bank overdrafts
Net cash and cash equivalents
Note
19
204.4
–
204.4
17. TRADE AND OTHER RECEIVABLES
(US$ in millions)
Current:
Trade receivables
Other receivables
Prepayments and accrued income
Total trade and other receivables
Non-current:
Prepayments and accrued income
Pension asset
Other receivables
Total other receivables
144.3
(3.5)
140.8
As at
31 December
2014
As at
31 December
2013
(restated)
220.4
7.3
77.7
305.4
207.7
20.5
48.8
277.0
3.9
18.0
2.5
24.4
2.3
14.6
4.7
21.6
During 2014, the Group changed the classification of certain accrued income accounts, which are now presented within trade receivables. As a result
of this change in presentation, $12.8m of prepayments and accrued income were reclassified to trade receivables as at 31 December 2013.
110
17. TRADE AND OTHER RECEIVABLES CONTINUED
The Group’s trade and other receivables are stated after provisions for uncollectable trade receivables. Movements in the provisions during the year
were as follows:
(US$ in millions)
2014
2013
1 January
Charged to the provision in respect of the current year
Utilised in the year
Provision released in the year
As at 31 December(1)
10.5
9.0
(0.5)
(0.3)
18.7
12.2
0.8
(2.0)
(0.5)
10.5
(1) The maturity of the Group’s provision for uncollectable trade receivables for the year ended 31 December 2014 is $4.2m between 1 and 30 days overdue, $7.8m between 31 and 120 days
overdue and $6.7m over 120 days overdue (2013: $0.4m current, $1.1m between 1 and 30 days, $2.1m between 31 and 121 days and $6.9m over 120 days).
The Directors consider the carrying value of trade and other receivables to approximate to their fair value.
18. INVENTORIES
(US$ in millions)
Finished goods
Work in progress
Total inventories
As at
31 December
2014
As at
31 December
2013
28.0
0.4
28.4
27.7
–
27.7
The Group’s inventories are stated after allowances for obsolescence. Movements in the allowance during the year were as follows:
(US$ in millions)
1 January
Charged to the allowance in respect of the current year
Provision released in the year
As at 31 December
The Directors consider the carrying value of inventories to approximate to their fair value.
As at
31 December
2014
3.5
12.3
(0.7)
15.1
As at
31 December
2013
3.3
0.2
–
3.5
STRATEGIC REPORT
GOVERNANCE
19. BORROWINGS
(US$ in millions)
Current:
Bank overdrafts
Deferred satellite payments(2)
EIB Facility(3)
Ex-Im Bank Facilities(4) (5)
Convertible Bonds(6)
– Accretion of principal
Total current borrowings
Non-current:
Deferred satellite payments(2)
Senior Notes due 2017(7)
– Net issuance premium
Senior Notes due 2022(8)
– Net issuance discount
EIB Facility(3)
Ex-Im Bank Facilities(4) (5)
Convertible Bonds(6)
– Accretion of principal
Total non-current borrowings
Total borrowings(9)
111
As at 31 December 2014
Deferred
Gross
finance
amount
cost(1)
–
5.9
44.1
68.1
–
–
118.1
17.4
–
–
1,000.0
(7.6)
132.1
568.9
301.3
3.1
2,015.2
2,133.3
–
–
–
–
–
–
–
–
–
–
(8.7)
–
(0.6)
(18.9)
–
–
(28.2)
(28.2)
Net balance
–
5.9
44.1
68.1
–
–
118.1
17.4
–
–
991.3
(7.6)
131.5
550.0
301.3
3.1
1,987.0
2,105.1
Deferred
Gross
finance
amount
cost(1)
Net balance
3.5
10.6
44.1
13.3
325.6
3.0
400.1
–
–
–
–
(1.0)
–
(1.0)
3.5
10.6
44.1
13.3
324.6
3.0
399.1
23.6
850.0
5.9
–
–
176.2
530.2
–
–
1,585.9
1,986.0
–
(8.7)
–
–
–
(1.1)
(18.1)
–
–
(27.9)
(28.9)
23.6
841.3
5.9
–
–
175.1
512.1
–
–
1,558.0
1,957.1
(1) Borrowings are recorded net of unamortised deferred finance costs in the Balance Sheet.
(2) Deferred satellite payments represent amounts payable to satellite manufacturers which become payable annually depending on the continued successful performance of the satellite.
The gross amounts of the deferred satellite payments have been discounted to net present value using a weighted average rate of 4.7% (2013: 5.1%).
(3) In 2010, the Group signed an 8-year facility agreement from the European Investment Bank (the ‘EIB Facility’). No additional funding is available under this facility, which matures on
30 April 2018 and is repayable in equal annual instalments. Interest is equal to three-month USD LIBOR plus a margin, payable in January, April, July, and October each year.
(4) In 2011, the Group signed a 12.5-year $700.0m direct financing agreement with the Export-Import Bank of the United States (the ‘Ex-Im Bank 2011 Facility’). The facility has a total
availability period of 4 years and will then be repayable in equal instalments over a further 8.5 years. Drawings under the facility incur interest at a fixed rate of 3.11% for the life of the loan.
As at 31 December 2014, total drawings of $569.3m have been made under the facility.
(5) In November 2014, the Group signed a 7-year $185.9m direct financing agreement with the Export-Import Bank of the United States (the ‘Ex-Im Bank 2014 Facility’). The facility has a total
availability period of 2 years and will then be repayable in equal semi-annual instalments over a further 5 years. Drawings under the facility incur interest at a fixed rate of 1.96% for the life of the
loan. As at 31 December 2014, total drawings of $67.7m have been made under the facility.
(6) In 2007, the Group issued $287.7m in principal amount of 1.75% Convertible Bonds due 2017 (the ‘Convertible Bonds’). The bonds are convertible into ordinary shares of the Company and have
a 1.75% per annum coupon payable semi-annually and a yield to maturity of 4.50%. The total number of common shares to be issued if all bonds are converted is 22.7 million shares and the
conversion price as at 31 December 2014 is $12.31. The conversion price is subject to periodic adjustment if dividends paid on ordinary shares exceed defined levels. The bonds will mature in
November 2017 and can be settled in cash or converted to common shares at the prevailing conversion price at that time. At 31 December 2013, the Convertible Bonds were recorded as a current
liability due to the possibility of redemption in November 2014. However, only bonds with a total accreted principal amount of $0.9m were redeemed before expiration of the redemption option.
(7) On 4 June 2014, the Group redeemed the entire principal amount of $850.0m outstanding under the 7.375% Senior Notes due 2017 (the ‘Senior Notes due 2017’). A redemption premium of
$32.8m was recognised and the remaining unamortised debt issue costs in relation to the Notes of $7.8m were written-off to finance expense. In addition, at redemption the unamortised net
premium on the Senior Notes due 2017 was written-off to the Income Statement resulting in a credit to finance income of $5.3m.
(8) On 4 June 2014, the Group issued $1 billion aggregate principal amount of 4.875% Senior Notes due 2022 (the ‘Senior Notes due 2022’). The aggregate gross proceeds were $991.9m, net of
$8.1m issuance discount. In addition, capitalised issuance costs of $9.2m were recorded in relation to the Senior Notes due 2022.
(9) In 2011, the Group signed a 5-year $750.0m revolving credit facility (the ‘Senior Credit Facility’) with a group of commercial banks as lenders. Advances under the facility bear interest at a rate
equal to the applicable USD LIBOR, plus a margin of between 1.00% and 2.50% determined by reference to the Group’s ratio of net debt to EBITDA. As at 31 December 2014 and 2013, there were
no drawings on the Senior Credit Facility.
112
19. BORROWINGS CONTINUED
Convertible bonds
The net proceeds received from the issue of the Convertible Bonds were initially split into a liability component of $224.3m and an equity component
of $56.9m. The equity component represents the fair value of the option to convert the liability into equity of the Group as follows:
(US$ in millions)
Fair value of Convertible Bonds issued
Cost of issue
Net proceeds
Equity component
Liability component at date of issue
Cumulative interest charged to 31 December 2013
Cumulative amortisation of debt issue costs to 31 December 2013
Cumulative coupon interest to 31 December 2013
Liability component at 31 December 2013
Interest charged
Redemption of convertible bonds
Amortisation of debt issue costs
Coupon interest
Liability component at 31 December 2014
287.7
(6.5)
281.2
(56.9)
224.3
129.8
4.1
(30.6)
327.6
(18.3)
(0.9)
1.0
(5.0)
304.4
The interest charged for the year is calculated by applying an effective interest rate of 9.88% to the liability component. The total interest charge is
split between the coupon interest charge of $5.0m and accreted interest of $25.2m. The coupon interest is paid semi-annually in May and November
each year until maturity. Similarly, the bonds accrete semi-annually in May and November each year until maturity. During 2014, a non-recurring
credit of $48.5m was recognised against interest charged on the Convertible Bonds arising from an adjustment to the expected maturity date, due to
the expiration of the bond holder’s redemption option in November 2014.
Maturity of borrowings
The maturity of non-current borrowings is as follows:
(US$ in millions)
Between one and two years
Between two and five years
After five years
As at
31 December
2014
As at
31 December
2013
130.7
688.8
1,167.5
1,987.0
103.6
1,173.5
280.9
1,558.0
The Directors consider the carrying value of borrowings, other than the Senior Notes due 2022 and Convertible Bonds to approximate to their fair
value (see note 32). The effective interest rates at the balance sheet dates were as follows:
Effective interest rate %
Bank overdrafts
EIB Facility
Ex-Im Bank 2011 Facility
Ex-Im Bank 2014 Facility
Deferred satellite payments
Convertible Bonds
2014
2013
1.25
1.57
–
4.875
3.11
1.96
4.70
9.88
1.50
1.52
7.375
–
3.11
–
5.10
9.88
STRATEGIC REPORT
GOVERNANCE
113
20. TRADE AND OTHER PAYABLES
(US$ in millions)
Current:
Trade payables
Deferred consideration
Other taxation and social security payables
Other creditors
Accruals and deferred income(1)
Total trade and other payables
Non-current:
Deferred consideration
Other payables
Total other payables
As at
31 December
2014
As at
31 December
2013
136.5
2.0
5.1
3.3
328.0
474.9
132.4
3.1
5.2
2.5
372.5
515.7
0.4
25.2
25.6
0.7
25.5
26.2
(1) Includes $208.8m (2013: $252.6m) of deferred income relating to payments received from LightSquared. During 2014, $43.8m was released to the Income Statement to reflect revenue
earned, based on the percentage of completion method (2013: $12.3m).
The Directors consider the carrying value of trade and other payables to approximate to their fair value.
21. PROVISIONS
Movements in the current portion of the Group’s provisions were as follows:
(US$ in millions)
Current:
As at 1 January 2013
Charged in respect of current year
Utilised in current year
Transferred from non-current liabilities
Charged in respect of current year
Revision in estimated timing of settlement
Asset
retirement
obligations
0.1
–
(0.2)
0.6
0.5
–
–
(0.2)
0.3
Other
provisions
5.4
4.3
(5.9)
–
3.8
4.3
(5.0)
–
3.1
The Group’s other provisions relate primarily to restructuring charges. The associated cash flows in respect of the restructuring provisions
outstanding at 31 December 2014 are expected to occur within one year.
Total
5.5
4.3
(6.1)
0.6
4.3
4.3
(5.0)
(0.2)
3.4
114
21. PROVISIONS CONTINUED
Movements in the long-term portion of the Group’s provisions were as follows:
(US$ in millions)
Non-current:
As at 1 January 2013
Charged to Income Statement in respect of current year
Credited directly to Comprehensive Income in respect
of current year
Contributions paid
Transferred to liabilities associated with assets held for sale
Net movement in pension asset
Transferred to current liabilities
Charged to Income Statement in respect of current year
Credited directly to Comprehensive Income in respect
of current year
Contributions paid
Net movement in pension asset
Revision in estimated timing of settlement
Postemployment
benefits
Pension
Asset
retirement
obligations
Other
provisions
Total
16.5
1.3
4.2
2.4
4.1
0.2
0.6
1.2
25.4
5.1
(0.1)
–
(0.3)
–
–
–
17.4
–
(2.6)
(2.2)
(0.7)
–
2.6
–
3.7
1.1
–
–
–
(2.5)
–
(0.6)
1.2
0.1
–
–
(0.2)
–
–
–
1.6
4.2
(2.7)
(2.2)
(1.2)
(2.5)
2.6
(0.6)
23.9
5.4
1.3
–
(0.3)
–
–
18.4
(4.7)
(1.7)
(0.2)
3.4
–
1.6
–
–
–
–
0.2
1.5
–
–
(0.1)
–
–
5.7
(3.4)
(1.7)
(0.6)
3.4
0.2
27.2
At 31 December 2014 and 31 December 2013, the Group’s largest defined benefit pension plan was in an asset position and therefore included in non-current
other receivables (see note 17).
Asset retirement obligations relate to the expected costs of removing equipment from leased premises.
Included in long-term other provisions are charges relating to legal and other disputes, including notifications of possible claims. The Group’s Directors
have established provisions after taking into account the facts of each case.
22. CURRENT AND DEFERRED INCOME TAX ASSETS AND LIABILITIES
The current income tax asset of $8.5m and current income tax liability of $81.3m (2013: $11.6m and $100.2m, respectively), represent the income
tax payable in respect of current and prior periods less amounts paid.
RECOGNISED DEFERRED INCOME TAX ASSETS AND LIABILITIES
Deferred income tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12) for the year are shown below:
(US$ in millions)
Property, plant and equipment and
intangible assets
Borrowing costs capitalised in the cost
of qualifying assets
Other
Pension and post-employment benefits
Share options
Loss carry forwards
Net deferred income tax liabilities
Assets
Liabilities
Net
(10.5)
166.2
155.7
–
(7.2)
(1.1)
(6.9)
(20.6)
(46.3)
37.7
1.2
0.8
–
–
205.9
37.7
(6.0)
(0.3)
(6.9)
(20.6)
159.6
Assets
Liabilities
Net
(0.3)
144.0
143.7
–
(7.2)
(1.1)
(6.6)
(10.8)
(26.0)
30.5
4.0
0.3
–
–
178.8
30.5
(3.2)
(0.8)
(6.6)
(10.8)
152.8
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when the deferred income taxes relate to the same fiscal authority.
STRATEGIC REPORT
GOVERNANCE
115
The value of deferred income tax assets and liabilities included in the net deferred income tax balance is shown below:
As at
31 December
2014
(US$ in millions)
Deferred income tax assets
Net deferred income tax liabilities
(26.7)
186.3
159.6
As at
31 December
2013
(21.3)
174.1
152.8
Movement in temporary differences during the year:
As at
1 January
2014
(US$ in millions)
Property, plant and equipment and intangible assets
Borrowing costs capitalised in the cost of qualifying assets
Other
Share options
Loss carry forwards
Total
(US$ in millions)
Property, plant and equipment and intangible assets
Borrowing costs capitalised in the cost of
qualifying assets
Other
Share options
Loss carry forwards
Total
143.7
30.5
(3.2)
(0.8)
(6.6)
(10.8)
152.8
As at
1 January
2013
TC Comms
acquisition
138.9
–
–
–
–
–
0.1
0.1
19.5
(3.9)
(1.4)
(3.9)
(7.9)
141.3
Globe
Wireless
acquisition
1.2
–
–
–
–
–
1.2
Transferred
to held
for sale
Recognised
in income
10.8
7.2
(1.9)
(0.1)
(0.1)
(9.8)
6.1
Recognised
in equity
–
–
(0.9)
0.6
(0.2)
–
(0.5)
As at
31 December
2014
155.7
37.7
(6.0)
(0.3)
(6.9)
(20.6)
159.6
Recognised
in income
Recognised
in equity
As at
31 December
2013
(1.0)
5.8
–
143.7
–
–
–
–
–
(1.0)
11.0
(2.9)
–
(1.1)
(3.0)
9.8
–
3.6
0.6
(1.6)
–
2.6
30.5
(3.2)
(0.8)
(6.6)
(10.8)
152.8
Total unprovided deferred tax assets:
(US$ in millions)
Temporary timing differences
Unused income tax losses
Unused capital losses
Total
As at
31 December
2014
–
(3.1)
(25.1)
(28.2)
As at
31 December
2013
(9.6)
(6.9)
(25.3)
(41.8)
Overseas dividends received are largely exempt from UK tax but may be subject to foreign withholding taxes. The unrecognised gross temporary difference in respect
of the unremitted earnings of those overseas subsidiaries affected by such taxes is $nil (2013: $9.1m), resulting in a deferred tax liability of $nil (2013: $0.5m).
The Budget announced by the UK Chancellor on 20 March 2013 included changes to the main rate of corporation tax for UK companies. The standard rate of
corporation tax was reduced from 23% to 21% from 1 April 2014 and there will be a further reduction to 20% with effect from 1 April 2015. The deferred tax
assets and liabilities at the Balance Sheet date are calculated at the substantively enacted rate of 20%.
116
23. CASH GENERATED FROM OPERATIONS
Reconciliation of profit for the year to cash generated from operations:
(US$ in millions)
Adjustments for:
Income tax expense
Finance expense
Finance income
Non-cash employee benefit costs
Forward exchange contracts
Share of profit of associates, net of dividends received
Impairment losses
Non-cash foreign exchange movements
Changes in net working capital:
Increase in trade and other receivables
Decrease/(increase) in inventories
Decrease in trade and other payables
Increase in provisions
2014
2013
341.1
102.6
291.8
1.2
75.1
(8.1)
11.3
2.1
(1.5)
1.2
–
1.3
2.7
232.0
86.5
54.2
(4.9)
15.7
(2.3)
(1.1)
0.1
(4.6)
185.2
1.3
(8.7)
3.1
(61.3)
2.1
653.4
(10.9)
(6.5)
(35.0)
2.5
614.8
24. SHARE CAPITAL
(US$ in millions)
Authorised:
1,166,610,560 ordinary shares of €0.0005 each (2013: 1,166,610,560)
Allotted, issued and fully paid:
448,321,387 ordinary shares of €0.0005 each (2013: 448,301,122)
As at
31 December
2014
As at
31 December
2013
0.7
0.7
0.7
0.7
0.3
0.3
0.3
0.3
During the year ended 31 December 2014, a total of 20,265 (2013: 439,276) ordinary shares of €0.0005 each were allotted and issued by the
Company under its employee share schemes. No shares were repurchased during 2014 or 2013.
25. EMPLOYEE SHARE OPTIONS AND AWARDS
The Group operates a number of share plans used to award options and shares to Directors and employees as part of their remuneration packages.
During 2014, the Inmarsat plc Executive Share Plan (‘ESP’) was approved by shareholders and replaced the previous Executive Share Plans. Share
awards since May 2014 have been made in accordance with the new share plan rules. Under the ESP the Company can grant Bonus Share Awards
(‘BSA’) and Performance Share Awards (‘PSA’), which replicate the previous Bonus Share Plan (‘BSP’) and Performance Share Plan (‘PSP’) awards.
The costs of these awards are recognised in the Income Statement (see note 7) based on the fair value of the awards on the grant date. Further
information on how these are calculated can be found below and under ‘Employee benefits’ in the principal accounting policies on page 95.
Staff Value Participation Plan
All options granted under the Staff Value Participation Plan (the ‘2004 Plan’) have now vested and are exercisable. Whenever options are exercised
under the 2004 Plan, the holder must pay a de minimis charge of €1 for each tranche of options exercised. The options expire 10 years from the date
of grant. Shares are transferred to the option holders from the Inmarsat Employees’ Share Ownership Plan Trust (the ‘Trust’) (resident in Guernsey).
No new shares have been issued to satisfy the exercise of these options.
STRATEGIC REPORT
GOVERNANCE
117
A summary of all share activity within the Trust, which reflects the options outstanding under the 2004 Plan as at 31 December 2014, is as follows:
Shares
available
for grant
Balance at 1 January 2013
Exercised – International Share Incentive Plan
Balance at 31 December 2013
Exercised – Staff Value Participation Plan
Exercised – Bonus Share Plan
Exercisable at 31 December 2014
Exercise price per tranche
814,688
(38,533)
776,155
–
(552,027)
224,128
2004
Plan
options
outstanding
77,026
–
77,026
(26,511)
–
50,515
50,515
€1.00
Weighted
average
exercise
price per
option
£3.72
£3.72
£7.23
£3.74
The weighted average of the remaining contractual life for the 2004 Plan at 31 December 2014 is less than one year.
Bonus Share Award
Awards have been made regularly under the BSA to Executive Directors and certain members of senior management. Further information on awards
granted to Directors can be found in the ‘Remuneration Report’ on pages 66 to 82.
Awards are made in the form of a conditional allocation of shares. The performance conditions attached to the BSA are non-market based
performance conditions. Any dividends paid by the Company will accrue and be added as additional shares upon vesting.
Details of the operation of the BSA can be found in the Annual Report on Remuneration.
Under the rules of the BSA the Remuneration Committee has the discretion to satisfy the awards using cash instead of shares. It is, however, the
intention of the Company to generally satisfy the awards using newly-issued shares.
As the BSA provides non-contributory share awards that have an entitlement to dividends and no market-based performance conditions attached,
the fair value of the awards is the value of the grant. This is due to the fact that regardless of the market price at the time the award of shares is made,
the total value of shares to be awarded (excluding shares added in lieu of dividends) will not change.
The Remuneration Committee has approved a Long-Term Incentive Plan (‘LTIP’), for the Group’s Business Unit presidents and certain members of staff.
The current three-year plan relates to the 2012 to 2014 financial years and awards are made according to achievements against non-market based
targets. Any dividends paid by the Company will accrue and be added as additional shares upon vesting.
Performance Share Award
The PSA makes regular annual awards to Executive Directors and certain members of senior management. Further information on awards granted to
Directors can be found in the ‘Remuneration Report’ on pages 66 to 82. Participants are entitled to receive the value of any dividends that are paid
between the date of award and the date of vesting in the form of additional shares. Any such additional shares are only added to the number of shares
which will vest subject to performance conditions being satisfied.
The PSA shares will not ordinarily be transferred to participants until the third anniversary of the award date. The transfer of shares is dependent upon
performance conditions being satisfied over the three consecutive financial years starting in the financial year the award date falls. The rules of the
PSA provide that the Remuneration Committee has the discretion to satisfy the awards using cash instead of shares. It is, however, the intention of the
Company to satisfy the awards using newly-issued shares at the end of the relevant three-year period.
The performance conditions for the PSA are based on the Group’s Total Shareholder Return (‘TSR’) relative to constituents of the FTSE 50-150 and
FTSE 350 Indices (excluding investment trusts), depending upon the year of the award, and on EBITDA measured over a three-year period. For the
awards made in 2012, 2013 and 2014, the vesting schedule is structured so that 50% of the reward is linked to the performance of TSR and 50% is
linked to EBITDA, as individual performance measures. The market-based performance condition has been incorporated into the fair value.
118
25. EMPLOYEE SHARE OPTIONS AND AWARDS CONTINUED
The fair values and the assumptions used in the calculation of PSA awards vesting or due to vest in 2014 or after are as follows:
Grant date
Grant price
Exercise price
Bad leaver rate
Vesting period
Volatility
Fair value per share option
18 May
2011
£6.07
nil
0%
3 years
32.1%
£3.17
Performance Share Awards
30 March
19 March
2012
2013
£4.603
nil
0%
3 years
33.9%
£3.61
19 March
2014
£7.00
nil
0%
3 years
34.1%
£5.76
£7.08
nil
0%
3 years
32.7%
£5.52
Both the BSA and PSA share awards expire 10 years after date of grant or such shorter period as the Remuneration Committee may determine before
the grant of an award. For share awards outstanding at the period end the weighted average of the remaining contractual life for the BSA and PSA
share awards at 31 December 2014 is 1.3 and 1.1 years, respectively.
UK Sharesave Scheme and International Sharesave Plan
The UK Sharesave Scheme is an approved HM Revenue and Customs scheme. A grant made in December 2012 with an option price of £4.59
(reflecting the maximum discount permitted of 20%) will mature in February 2016.
The International Sharesave Plan mirrors the operation of the UK Sharesave Scheme as closely as possible. Participants are given either the opportunity
to receive options in the same way as the UK Sharesave Scheme, or the spread between the share price at the date of exercise and the grant price,
delivered (at the Company’s discretion) in cash or shares. It is the Company’s intention to satisfy the awards using shares, some of which are held by
the Trust and some of which will be newly-issued. A grant made in December 2012 with an option price of £4.59 will mature in February 2016.
Options under the UK Sharesave Scheme and International Sharesave Plan expire after a maximum of 3.5 years following the initial savings
payments having been made. The remaining contractual life for the current grant of the UK Sharesave Scheme and International Sharesave
Plan at 31 December 2014 is 1.5 years for each plan.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (‘ESPP’) is for US and Canadian employees to purchase the Company’s stock at a 15% discount using funds
accumulated by an aggregate of 24 monthly contributions. A grant made under the scheme in November 2012 with an option price of £4.94
(reflecting the maximum discount permitted of 15%) matured in January 2015. Options under the ESPP expire after a maximum of 2.25 years.
The remaining contractual life for the current grant of the ESPP at 31 December 2014 is 0.2 years.
Options under the UK Sharesave Scheme, International Sharesave Plan and ESPP have been valued with a Black-Scholes model using the following assumptions:
Grant date
Market price at date of grant
Exercise price
Bad leaver rate
Vesting period
Volatility
Dividend yield assumption
Risk free interest rate
Fair value per option
Sharesave
Scheme
(UK and International)
18 December 2012
Employee Stock
Purchase Plan
26 November 2012
£5.93
£4.59
3% pa
3 years
33.1%
4.53%
0.46%
£1.45
£5.93
£4.94
3% pa
2 years
36.5%
4.53%
0.36%
£1.34
UK Share Incentive Plan
The UK Share Incentive Plan (‘SIP’) has made several awards and is an approved HM Revenue and Customs scheme. Arrangements exist which
replicate the awards as closely as possible for eligible international employees, using the same market values per award as used by SIP.
STRATEGIC REPORT
GOVERNANCE
119
A summary of share awards and option activity as at 31 December 2014 (excluding the 2004 Plan which is noted above) is as follows:
SIP (UK)
Granted/allocated
Forfeited and lapsed
Exercised
Transferred/sold
Exercisable at 31 December 2014
Exercise price per share
463,557
–
–
(71,480)
–
392,077
–
n/a
BSA(1)
1,824,135
910,830
(116,627)
–
(795,653)
1,822,685
–
nil
PSA
1,474,278
531,136
(317,334)
–
–
1,688,080
–
nil
Sharesave
(UK)
570,927
–
(43,219)
(11,974)
–
515,734
–
£4.59
Sharesave
(International)
ESPP
313,317
–
(24,138)
(987)
–
288,192
–
£4.59
114,693
–
(21,390)
(7,304)
–
85,999
–
£4.94
Total
4,760,907
1,441,966
(522,708)
(91,745)
(795,653)
4,792,767
–
(1) Includes the Business Unit LTIP scheme.
26. RESERVES
Cash flow hedge reserve:
(US$ in millions)
2014
2013
Balance as at 1 January
Gain/(loss) recognised on cash flow hedges:
FX movement through cash flow hedge reserve
Income tax charged directly to equity
Reclassified to the Income Statement(1):
Interest rate swaps
Income tax credited/(charged) related to amounts transferred to the Income Statement (1)
Reclassified and capitalised on the Balance Sheet:
Forward exchange contracts previously derecognised as ineffective(2)
Balance as at 31 December
8.6
(2.5)
(3.0)
0.1
0.2
11.6
(1.5)
(2.1)
(11.7)
–
1.9
2.3
(3.4)
9.4
0.2
(1.5)
–
–
–
(1.6)
(0.8)
(0.9)
0.1
8.6
(1) Gains and losses reclassified from equity into the Income Statement during the period are included in the following Income Statement lines:
(2) Forward exchange contracts previously derecognised as they were deemed ineffective were released from the cash flow hedge reserve and capitalised on the Balance Sheet in line with the
underlying expenditure.
(US$ in millions)
2014
2013
Total net operating costs
Interest payable and similar charges
Income tax expense
Total reclassified ((credited)/charged) to the Income Statement in the year
(9.8)
–
2.3
(7.5)
(3.2)
9.4
(1.5)
4.7
Gains and losses relating to the effective portion of cash flow hedges are recognised in Other Comprehensive Income and the Cash flow hedge reserve.
When a hedged item is recognised in the Income Statement the cumulative deferred gain or loss in Other Comprehensive Income and the Cash flow
hedge reserve is reclassified to the Income Statement. When a hedged item is recognised as a non-financial asset or liability in the Balance Sheet the
accumulated gain or loss is transferred from the Cash flow hedge reserve and included in the initial measurement of its cost.
27. EARNINGS PER SHARE AND ADJUSTED EARNINGS PER SHARE
BASIC EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of
ordinary shares in issue during the year, excluding those held in the employee share trust.
(US$ in millions, except share and per share amounts)
Profit attributable to equity holders of the Company
Weighted average number of ordinary shares in issue
Basic earnings per share
2014
2013
340.5
448,089,231
0.76
102.0
448,167,216
0.23
120
27. EARNINGS PER SHARE AND ADJUSTED EARNINGS PER SHARE CONTINUED
DILUTED EARNINGS PER SHARE
Diluted earnings per share is calculated by increasing the weighted average number of shares used in basic earnings per share calculation by any
potentially dilutive ordinary shares. Potentially dilutive ordinary shares exist in respect of employee share options and awards from the Group’s
employee share plans. A calculation is performed to determine the number of shares that could have been acquired at fair value (determined as
the average annual market price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share
options and awards and value of related future employee services.
For 2014, the Convertible Bonds are dilutive due to the credit recognised to interest expense from re-basing the bonds to mature in November 2017
(note 19). For 2013, the Convertible Bonds were not included in the calculation of diluted earnings per share as they were anti-dilutive.
Interest on convertible bonds (net of tax)
Profit attributable to equity holders of the Company for diluted earnings per share
Share options
Convertible bonds
Weighted average number of ordinary shares for diluted earnings per share
Diluted earnings per share
2014
340.5
(14.4)
326.1
448,089,231
4,540,198
22,664,251
475,293,680
0.69
2013
102.0
–
102.0
448,167,216
4,588,215
–
452,755,431
0.23
ADJUSTED EARNINGS PER SHARE
Adjustments for:
Provision in respect of tax liability on historic transaction
LightSquared Cooperation Agreement (net of tax)
Impairment losses (net of tax)
Adjusted profit attributable to equity holders of the Company
Adjusted basic earnings per share
2014
340.5
(53.1)
(59.0)
0.9
229.3
448,089,231
0.51
2013
(restated)(1)
102.0
53.1
(6.9)
159.2
307.4
448,167,216
0.69
(1) Adjusted earnings per share for the year ended 31 December 2013 has been restated to reflect the impact of the 2013 tax provision.
ADJUSTED DILUTED EARNINGS PER SHARE
Interest on convertible bonds (net of tax)
Adjustments for:
Provision in respect of tax liability on historic transaction
LightSquared Cooperation Agreement (net of tax)
Impairment losses (net of tax)
Share options
Convertible bonds
Weighted average number of ordinary shares for diluted earnings per share
Adjusted diluted earnings per share
2014
340.5
(14.4)
326.1
(53.1)
(59.0)
0.9
214.9
448,089,231
4,540,198
22,664,251
475,293,680
0.45
2013
(restated)(1)
102.0
–
102.0
53.1
(6.9)
159.2
307.4
448,167,216
4,588,215
–
452,755,431
0.68
(1) Adjusted diluted earnings per share for the year ended 31 December 2013 has been restated to reflect the impact of the 2013 tax provision.
28. PENSION ARRANGEMENTS AND POST-EMPLOYMENT BENEFITS
The Group operates pension schemes in each of its principal locations. The Group’s pension plans are provided through both defined benefit schemes
and defined contribution arrangements.
The Group operates defined benefit pension schemes in the United Kingdom, the Netherlands and Norway. The Group’s principal defined benefit
pension plan is the Inmarsat Global scheme, which is a UK funded scheme with assets held in a separate fund administered by a corporate trustee; the
scheme is closed to new employees.
The Inmarsat Global defined benefit plan was valued using the projected unit credit method with the valuation undertaken by professionally qualified
and independent actuaries as at 31 December 2011. The results of the valuation, which have been updated for any material transactions and material
changes in circumstances (including changes in market prices and interest rates) up to 31 December 2014, are set out below.
STRATEGIC REPORT
GOVERNANCE
121
The Group also provides post-employment benefits for some of its employees. The Group’s principal scheme is the Inmarsat Global post-retirement
healthcare benefit scheme, which is the provision of healthcare to retired employees (and their dependants) who were employed before 1 January 1998.
Employees who have 10 years of service at the age of 58 and retire are eligible to participate in the post-retirement healthcare benefit plans. Membership
of this plan is multinational, although most staff are currently employed in the UK. The plans are self-funded and there are no plan assets from which the
costs are paid. The cost of providing these benefits is actuarially determined and accrued over the service period of the active employee groups.
Schemes denominated in local currencies are subject to fluctuations in the exchange rate between US Dollars and local currencies.
The primary risk to which the Inmarsat Global defined benefit plan exposes the Group is the risk arising through a mismatch between the plan’s assets
and its liabilities. This is primarily made up of a number of strategic investment risks. The key strategic investment risks inherent in the current
investment strategy are as follows:
> market risk (the risk that investment returns on assets are lower than assumed in the actuarial valuation, thereby resulting in the funding level being
lower than expected);
> interest rate risk (the risk that the assets do not move in line with the value placed on the liabilities in response to changes in interest rates);
> inflation risk (similar to interest rate risk but concerning inflation);
> credit risk (the risk that payments due to corporate bond investors may not be made);
> active management risk (the risk that active managers underperform the markets in which they invest, resulting in lower-than-expected investment
returns); and
> currency risk (the risk that currency market movements adversely impact investment returns).
In addition to the investment related risks, the plan is also subject to the risk that members live longer than expected, or that the financial assumptions used
in valuing the liabilities are not borne out in practice. This could lead to unexpected contributions from the Group being required to meet the benefit
payments due.
The principal actuarial assumptions used to calculate the Group’s pension and post-employment benefits liabilities under IAS 19 are:
Weighted average actuarial assumptions used at 31 December:
Discount rate
Future salary increases
Medical cost trend rate(1)
Future pension increases
As at
31 December
2014
As at
31 December
2013
3.74%
3.05%
3.40%
3.39%
4.72%
3.43%
4.00%
3.32%
(1) With effect from 1 January 2012, an inflationary cap on premiums for the Inmarsat Global post-retirement healthcare benefit scheme was introduced, set at CPI plus 1%. The Group will pay the
annual premium and any increase in percentage terms to the premium, up to a percentage amount capped at no more than CPI plus 1%. Any increase to the annual premium above the
inflationary cap will be payable by the members of the scheme.
Mortality assumptions have been updated to reflect experience and expected changes in future improvements in life expectancy. The average life
expectancy assumptions for the Company’s pension and post-employment benefits liabilities are as follows:
Male current age 65
Female current age 65
Life expectancy
2014
Life expectancy
2013
88.6
90.2
88.2
90.2
Mortality assumptions used are consistent with those recommended by the individual scheme actuaries and reflect the latest available tables,
adjusted for the experience of the Group where appropriate. For the Inmarsat Global defined benefit pension scheme and the Inmarsat Global
post-retirement healthcare benefits for 2014 and 2013, mortality has been assumed to follow the SAPS tables with -1 year age rating for males and
CMI 2011 improvement with a long-term trend of 1.5%.
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, expected salary increase, mortality and
healthcare cost trend rates. The sensitivity analysis below is for the Group’s principal pension and post-employment benefits schemes, and has been
determined based on reasonable possible changes of the assumptions occurring at the end of the reporting period assuming that all other
assumptions are held constant.
Inmarsat Global defined benefit scheme:
Change in assumption
Increase in discount factor of 0.25%
Decrease in discount factor of 0.25%
Increase in inflation of 0.25%
Decrease in inflation of 0.25%
Mortality: -2 years for males and -1 year for females
Impact on
benefit
obligation
increase/
(decrease)
(5.9%)
6.4%
6.4%
(5.9%)
2.6%
Impact on
projected
pension cost
increase/
(decrease)
(31.3%)
31.5%
30.2%
(28.0%)
11.8%
122
28. PENSION ARRANGEMENTS AND POST-EMPLOYMENT BENEFITS CONTINUED
Inmarsat Global post-retirement healthcare benefit scheme:
Impact on
benefit
obligation
increase/
(decrease)
Change in assumption
Increase in discount factor of 0.5%
Increase in inflation of 0.5%
Increase in healthcare cost trend rate of 1%
Decrease in healthcare cost trend rate of 1%
(8.9%)
10.2%
21.7%
(16.9%)
Impact on
service cost
increase/
(decrease)
–
–
20.3%
(15.7%)
In reality there is an expectation of inter-relationships between the assumptions, for example, between discount rate and inflation. The above analysis
does not take the effect of these inter-relationships into account.
Amounts recognised in the Balance Sheet are:
As at
31 December
2014
(US$ in millions)
Present value of funded defined benefit obligations (pension)
Present value of unfunded defined benefit obligations (pension)
Present value of unfunded defined benefit obligations (post-employment benefits)
Fair value of defined benefit assets
Net defined benefit liability recognised in the Balance Sheet
(116.2)
(1.0)
(18.4)
133.6
(2.0)
As at
31 December
2013
(101.9)
(1.2)
(17.4)
114.0
(6.5)
The above net liability is recognised in the Balance Sheet as follows:
(US$ in millions)
Pension asset
Defined benefit liability
Note
17
21
As at
31 December
2014
18.0
(20.0)
As at
31 December
2013
14.6
(21.1)
Analysis of the movement in the present value of the defined benefit obligations is as follows:
(US$ in millions)
At 1 January 2013
Current service cost
Interest cost
Remeasurement losses/(gains):
Actuarial losses arising from changes in demographic assumptions
Actuarial losses/(gains) arising from changes in financial assumptions
Foreign exchange losses
Benefits paid
Contributions by pension participants
At 31 December 2013
Past service cost
Interest cost
Remeasurement losses:
Actuarial losses arising from changes in financial assumptions
Gain on curtailment
Liabilities extinguished on settlement
Foreign exchange losses
Benefits paid
At 31 December 2014
Defined
benefit
pension
plan
Postemployment
benefits
88.3
3.0
3.9
16.5
0.2
0.8
0.4
4.9
2.8
(1.5)
1.3
103.1
2.4
–
4.4
–
(0.1)
0.3
(0.3)
–
17.4
0.2
0.1
0.8
14.9
(1.4)
(1.3)
(5.4)
(0.8)
1.3
117.2
1.3
–
–
(1.1)
(0.3)
–
18.4
STRATEGIC REPORT
GOVERNANCE
123
Analysis of the movement in the fair value of the assets of the defined benefit pension plans is as follows:
(US$ in millions)
At 1 January
Interest income
Remeasurement gains:
Experience return on plan asset (excluding interest income)
Actuarial gains arising from changes in demographic assumptions
Actuarial gains arising from changes in financial assumptions
Contributions by employer
Benefits paid
Assets distributed on settlement
Expenses paid (included in service cost)
Foreign exchange gains
At 31 December
As at
31 December
2014
As at
31 December
2013
114.0
5.0
96.1
4.5
17.7
0.3
1.6
1.5
1.5
(0.6)
(1.3)
(0.4)
(5.7)
133.6
7.4
0.2
0.3
2.1
1.4
(0.8)
–
(0.6)
3.4
114.0
Amounts recognised in the Income Statement in respect of the plans are as follows:
(US$ in millions)
Past service cost
Gain on curtailment
Net interest (income)/expense
Foreign exchange (gain)/loss
2014
Defined
benefit
pension plan
2.8
–
(1.4)
(0.6)
0.3
1.1
Postemployment
benefits
0.2
0.1
–
0.8
(1.1)
–
2013
Defined
benefit
pension plan
3.6
–
–
(0.6)
(0.6)
2.4
Postemployment
benefits
0.2
–
–
0.8
0.3
1.3
Current service cost is included within employee benefit costs (note 7). The net financing costs together with foreign exchange gains and losses are
included within interest payable (note 9).
Amounts recognised in the Statement of Comprehensive Income in respect of the plans are as follows:
(US$ in millions)
Actuarial (gains)/losses arising from changes in demographic assumptions
Actuarial losses/(gains) arising from changes in financial assumptions
Return on plan asset (excluding interest income)
Remeasurement of the net defined benefit asset and liability
2014
Defined
benefit
pension plan
(0.3)
13.3
(17.7)
(4.7)
Postemployment
benefits
–
1.3
–
1.3
2013
Defined
benefit
pension plan
0.2
4.6
(7.4)
(2.6)
Postemployment
benefits
–
(0.1)
–
(0.1)
The assets held in respect of the Group’s defined benefit schemes were as follows:
Percentage
Value
of total plan
(US$ in millions)
assets %
Equities
Cash
Bonds
Other
Fair value of scheme assets
44.0
0.1
73.9
15.6
133.6
32.93%
0.08%
55.31%
11.68%
Percentage
Value
of total plan
(US$ in millions)
assets %
39.0
0.2
60.2
14.6
114.0
34.21%
0.17%
52.81%
12.81%
124
28. PENSION ARRANGEMENTS AND POST-EMPLOYMENT BENEFITS CONTINUED
The Inmarsat Global defined benefit plan assets, which contribute over 95% of the total Group assets, are all invested in pooled investment funds, all
of which are priced daily, except for the High Lease-to-Value Property and Alternatives funds, which are priced monthly. The allocations to each of
the investment funds as at 31 December 2014 are as follows:
Fund
Passive Global Equity
Global Small Cap Equity
Global Fundamental (RAFI) Equity
Emerging Markets Equity
Global Low Volatility Equity
Emerging Markets Debt
Global High Yield Bonds
Alternatives
High Lease-to-Value Property
Private Debt
Multi Asset Credit
Total growth portfolio
Inflation-Linked LDI Bonds
Flexible Enhanced Matching Real
UK Credit
UK Inflation Linked Bonds
Total matching portfolio
Total assets
Legal structure
Allocation (%)
Mercer QIF CCF
MGI Funds PLC
Mercer QIF CCF
MGI Funds PLC
MGI Funds PLC
MGI Funds PLC
MGI Funds PLC
Mercer QIF Fund PLC
Mercer QIF CCF
Mercer Private Investment Partners (Offshore) LLP
Mercer QIF Fund PLC
8.0
6.2
8.0
8.7
3.6
2.8
1.0
5.4
2.6
0.6
3.1
50.0
1.5
30.9
15.1
2.5
50.0
100.0
Mercer QIF Fund PLC
Mercer QIF Fund PLC
Mercer PIF Fund PLC
MGI Funds PLC
The investment portfolio seeks to mitigate the investment risks identified above through a combination of asset class diversification, underlying
investment manager diversification and the use of currency hedging where appropriate. The assets are split into two portfolios, the growth portfolio
and the matching portfolio. The assets within the growth portfolio are invested so as to achieve an appropriate level of growth above that of the plan’s
liabilities, ensuring a sufficiently diversified portfolio of investments provides the plan with a variety of sources of return, without unduly exposing the
plan to a single type of risk. The assets within the matching portfolio are invested so as to minimise the level of unrewarded risk and ensure the
portfolio broadly matches changes in the value of the plan’s liabilities. This is achieved by investing in a range of pooled investment funds as outlined
in the table above, with the allocation to each fund determined by a combination of the following: the nature of the plan’s liability structure, the target
level of hedging deemed appropriate to reflect the Trustee’s risk tolerance and a ‘fair value’ assessment of market levels. Some of these funds achieve
their objectives by utilising a range of bond/bond type instruments, resulting in leveraged exposure which enables the plan to match a greater
proportion of its liabilities than would be possible by only holding physical securities. Instruments utilised within the funds include fixed interest gilts,
index-linked gilts, corporate bonds, gilt repos, interest rate swaps, inflation swaps and total return swaps.
The plan does not hold any direct investments in the Group; however, due to the pooled nature of the investment funds, there may be some indirect investment.
The duration of the defined benefit liabilities within the Inmarsat Global defined benefit plan is approximately 27 years. The defined benefit obligation
within that plan is split as follows:
Active members
Deferred members
Pensioner members
69%
26%
5%
The average age of the non-pensioner and pensioner members at the date of the last statutory funding valuation for the Inmarsat Global defined
benefit plan (31 December 2011) was 52 years and 67 years, respectively.
The estimated contributions expected to be paid into the Inmarsat Global defined benefit pension plan during 2015 are $1.1m (2014: actual $1.2m).
Under the current Inmarsat Global defined benefit plan Recovery Plan and Schedule of Contributions there are no further contributions due in respect
of the past service deficit revealed as part of the last statutory funding valuation as at 31 December 2011. The current Schedule of Contributions
requires the Company to pay 15% of pensionable salary in respect of the additional accrual of future benefits for members of the defined benefit tier
of the Pensionbuilder section and any notional member contributions payable under the SMART arrangement. Contributions in respect of the Defined
Contribution tier and the Pensionsaver section are paid in addition.
The next statutory funding valuation of the Plan will be carried out as at 31 December 2014. As part of this the Trustees and Company will be required
to agree a pattern of contributions to cover any deficit revealed by the valuation, along with the rate payable for future accrual of benefits. This could
lead to an increase or decrease from the current level of contributions.
29. ACQUISITIONS
ACQUISITION OF TC COMMUNICATIONS
On 8 May 2013, the Group acquired the shares of TC Communications Pty Ltd (‘TC Comms’), a company based in Australia. The operations of
TC Comms have been integrated within the Government and Enterprise reporting segments. During 2014, TC Comms changed its name to
Inmarsat Australia Pty Ltd.
STRATEGIC REPORT
GOVERNANCE
125
ACQUISITION OF GLOBE WIRELESS
Effective from 1 January 2014, the Group acquired the mobile satellite communications business and substantially all of the related assets of Globe
Wireless LLC, for cash consideration of $45.2m. Globe Wireless is a leading provider of value-added maritime communications services to the
shipping market. The acquisition of Globe Wireless will benefit Inmarsat’s Maritime operating segment, with operating synergies and revenue growth
expected from the acquisition.
The acquisition of Globe Wireless has been accounted for using the acquisition method of accounting in accordance with IFRS 3, ‘Business
Combinations’. The consolidated results of the Group for the year ended 31 December 2014 include the financial results of Globe Wireless from
1 January 2014 (the effective date of the transaction). Where necessary, adjustments are made to the financial statements of subsidiaries to bring
the accounting policies used into line with those used by the Group.
During the year ended 31 December 2014, the allocation of the purchase consideration was finalised. As a result of this review, we recognised
identifiable intangible assets of $23.6m (refer to table below) and goodwill of $14.7m. Goodwill represents the excess of the purchase consideration
over the fair value of the assets and liabilities acquired. Qualitatively, goodwill represents, among other factors, the assembled workforce, which is not
separately identified as part of the purchase price allocation. The goodwill balance also represents the benefit to the Group of the operating
synergies and revenue growth expected from the acquisition.
The final allocation of the purchase consideration to the net assets and liabilities of Globe Wireless is as follows:
Grant date
Fair value
adjustments
Book value
Net assets acquired:
Intangible assets(1)
Property, plant and equipment
Other assets
Total non-current assets
Trade and other receivables(2)
Inventories
Other assets
Total current assets
Trade and other payables
Deferred revenue
Other liabilities
Non-current other payables
Total liabilities
Identifiable net assets
Cash consideration
Goodwill recognised(3)
12.7
3.2
0.2
16.1
22.0
3.7
2.4
28.1
(14.8)
(3.0)
(4.7)
–
(0.9)
(23.4)
20.8
10.9
–
–
10.9
–
–
–
–
–
–
–
(1.2)
–
(1.2)
9.7
Fair value at
acquisition date
23.6
3.2
0.2
27.0
22.0
3.7
2.4
28.1
(14.8)
(3.0)
(4.7)
(1.2)
(0.9)
(24.6)
30.5
45.2
14.7
(1) The allocation of intangible assets consists of $16.0m of customer relationships, $3.5m for software, $3.5m for technology and $0.6m in relation to trade names, which are to be amortised
over their useful lives of 14, 3 to 5, 5, and 5 years, respectively.
(2) The book value of trade receivables of $15.2m, included within trade and other receivables, approximates to their fair value and the entire balance is deemed collectable.
(3) Of the $14.7m goodwill balance recognised, 75% of the goodwill is deductible for tax purposes at the rate of 7% on a declining-balance basis.
The increase in the Group’s revenues in the year ended 31 December 2014 included $55.1m due to the acquisition of Globe Wireless. The impact
is shown net of intercompany eliminations and adjustments as Globe Wireless is an established distribution partner of Inmarsat; therefore the
stand-alone results of Globe Wireless do not represent a corresponding increase in Group results.
30. OPERATING LEASE AND OTHER COMMITMENTS
The Group’s future aggregate minimum lease payments under non-cancellable operating leases and other unrecognised contractual commitments
are as follows:
(US$ in millions)
Within one year
Within two to five years
After five years
NonOther
cancellable
unrecognised
operating
contractual
leases
commitments
16.1
51.9
64.1
132.1
13.7
24.0
–
37.7
Total
Noncancellable
operating
leases
29.8
75.9
64.1
169.8
18.0
55.8
74.5
148.3
Other
unrecognised
contractual
commitments
21.8
27.6
–
49.4
Total
39.8
83.4
74.5
197.7
Operating lease commitments primarily relate to leased office space, including the Group’s head office located at 99 City Road, London. Other
unrecognised non-cancellable contractual commitments relate to network service contracts and maintenance contracts, which have varying terms.
The total of future sublease payments expected to be received under non-cancellable subleases at 31 December 2014 relating to the aforementioned
head office lease is $1.1m over one year (as at 31 December 2013: $2.6m over two years).
126
30. OPERATING LEASE AND OTHER COMMITMENTS CONTINUED
In addition, the Group has the following purchase commitments, relating to future obligations to purchase space segment capacity:
(US$ in millions)
As at
31 December
2014
As at
31 December
2013
27.2
15.9
43.1
43.6
28.8
72.4
Within one year
The Group has various agreements deriving revenue from designated leased capacity and leased equipment. These amounts are recorded as revenue
on a straight-line basis over the respective lease terms and represent the majority of the Group’s future aggregate minimum lease payments under
non-cancellable operating leases expected to be received:
(US$ in millions)
As at
31 December
2014
As at
31 December
2013
32.1
12.0
44.1
40.7
–
40.7
As at
31 December
2014
As at
31 December
2013
Within one year
31. CAPITAL RISK MANAGEMENT
The following table summarises the capital of the Group:
(US$ in millions)
As per Balance Sheet
Borrowings
Net borrowings
Equity attributable to shareholders of the parent
Capital
(204.4)
2,105.1
1,900.7
1,182.6
3,083.3
(144.3)
1,957.1
1,812.8
1,047.5
2,860.3
The Group’s objective when managing its capital is to safeguard its ability to continue as a going concern in order to provide returns for shareholders
and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group continually evaluates
sources of capital and may repurchase, refinance, exchange or retire current or future borrowings and/or debt securities from time to time in private
or open-market transactions, or by any other means permitted by the terms and conditions of borrowing facilities and debt securities. Additionally,
the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group uses a maximum ratio of net borrowings to EBITDA as an internal planning parameter and in regular forecasting and monitoring activities.
In addition, movements in cash and borrowings as well as total available liquidity are monitored regularly.
The net borrowings (gross of deferred finance costs) to EBITDA ratio for the year ended 31 December 2014 is 2.75 (2013: 2.84).
The Group’s liquidity is disclosed in note 3(d).
No changes were made in the Group’s objectives, policies or processes for managing capital during the years ended 31 December 2014 and 2013.
32. FINANCIAL INSTRUMENTS
TREASURY MANAGEMENT AND STRATEGY
The Group’s treasury activities are managed by its corporate finance department under the direction of a Treasury Review Committee whose
chairman is the Chief Financial Officer, and are consistent with Board-approved treasury policies and guidelines. The overriding objective of treasury
activities is to manage financial risk.
Key features of treasury management include:
> ensuring that the Group is in a position to fund its obligations in appropriate currencies as they fall due;
> maintaining adequate undrawn borrowing facilities;
> economically hedging both contracted and anticipated foreign currency cash flows on a minimum 12 months rolling basis with the option of covering
exposures up to a maximum of three years forward;
> interest rate hedging; and
> maximising return on short-term investments based on counterparty limits and credit ratings.
Treasury activities are only transacted with counterparties who are approved relationship banks.
STRATEGIC REPORT
GOVERNANCE
127
The Group’s foreign exchange policy is implemented primarily through the use of forward purchases of foreign currencies. The treasury department is,
however, authorised to use purchased options, futures and other derivative instruments, but only to the extent that such instruments form part of the
hedging policy so as to establish a known rate of exchange.
Having arranged the purchase of foreign currency in line with the anticipated requirement for that currency over each financial year, an average rate
of exchange is calculated from the agreed currency transactions. This average rate is applied as per requirements of IAS 21. The policy is designed to
minimise the impact of currency gains and losses in the Income Statement; gains and losses will arise to the extent that the level of actual payments
in the period are different from those that were forecast.
FINANCIAL INSTRUMENTS BY CATEGORY
The following table sets out the categorisation of financial assets and liabilities in terms of IAS 39:
Assets as per Balance Sheet
Trade receivables and other (1)
Derivative financial
instruments
Investments
Loans and
receivables
Derivatives
used for
hedging
Availablefor-sale
Total
242.1
204.4
–
–
–
–
–
–
446.5
1.4
–
1.4
–
32.9
32.9
Loans and
receivables
Derivatives
used for
hedging
Availablefor-sale
Total
242.1
204.4
239.2
144.3
–
–
–
–
239.2
144.3
1.4
32.9
480.8
–
–
383.5
12.8
–
12.8
–
23.5
23.5
12.8
23.5
419.8
(1) Consists of trade receivables, other receivables and accrued income (see note 17).
(US$ in millions)
Liabilities as per Balance Sheet
Borrowings
Trade payables and other (1)
Derivatives
Other
used for
financial
hedging
liabilities
–
–
5.0
5.0
2,105.1
221.4
–
2,326.5
Total
2,105.1
221.4
5.0
2,331.5
Derivatives
Other
used for
financial
hedging
liabilities
–
–
0.5
0.5
1,957.1
219.3
–
2,176.4
Total
1,957.1
219.3
0.5
2,176.9
(1) Consists of trade payables, deferred consideration, other payables and accruals (see note 20).
The table below analyses the Group’s financial liabilities and net-settled derivative financial instruments into relevant maturity groupings based on
the remaining period at the Balance Sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows. Balances due within 12 months equal their carrying values as the impact of discounting is not significant.
(US$ in millions)
Borrowings
Trade payables and other
(1)
Less than
1 year
195.4
195.8
5.0
396.2
Between
Between
1 and 2 years
2 and 5 years
276.0
1.9
–
277.9
876.9
22.3
–
899.2
Over
5 years
Total
1,276.6
1.4
–
1,278.0
2,624.9
221.4
5.0
2,851.3
(1) Includes interest obligations on the Senior Notes due 2022, EIB Facility, Ex-Im Bank Facilities and Convertible Bonds. The interest obligations assume no changes in floating interest rates from
the year end.
(US$ in millions)
Borrowings(1)
Trade payables and other
Less than
1 year
487.0
193.1
0.5
680.6
Between
Between
1 and 2 years
2 and 5 years
189.4
1.3
–
190.7
1,343.7
23.3
–
1,367.0
Over
5 years
Total
303.4
1.6
–
305.0
2,323.5
219.3
0.5
2,543.3
(1) Includes interest obligations on the Senior Notes due 2017, EIB Facility, Ex-Im Bank 2011 Facility and Convertible Bonds. The interest obligations do not take into account the impact of interest
rate swaps and assume no changes in floating interest rates from the year end.
128
32. FINANCIAL INSTRUMENTS CONTINUED
FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS
The Group’s derivative financial instruments consist of forward foreign currency contracts, which are primarily designated as cash flow hedges.
The fair values at the Balance Sheet date were:
(US$ in millions)
As at
31 December
2014
As at
31 December
2013
1.4
–
1.4
1.4
–
12.1
0.7
12.8
9.2
3.6
4.5
0.5
5.0
5.0
0.5
–
0.5
0.5
Financial assets:
Forward foreign currency contracts – designated cash flow hedges
Forward foreign currency contracts – undesignated
Total derivative financial assets
Current portion of derivative financial assets
Non-current portion of derivative financial assets
Financial liabilities:
Forward foreign currency contracts – designated cash flow hedges
Forward foreign currency contracts – undesignated
Total derivative financial liabilities
Current portion of derivative financial liabilities
The full value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12
months and, as a current asset or liability if the maturity of the hedged item is less than 12 months.
The fair value of foreign exchange contracts performed by management are based upon a valuation provided by the counterparty and are classified
as level 2 in the fair value hierarchy according to IFRS 7. The fair value of foreign exchange contracts is based upon the difference between the
contract amount at the current forward rate at each period end and the contract amount at the contract rate, discounted at a variable risk-free rate
at the period end.
FORWARD FOREIGN EXCHANGE
The following table sets out the face value and fair value of forward foreign exchange contracts outstanding for the Group as at 31 December 2014 and 2013:
Outstanding forward foreign exchange contracts (in millions)
GBP contracts
Euro contracts
Canadian Dollar contracts
Outstanding forward foreign exchange contracts (in millions)
GBP contracts
Euro contracts
Canadian Dollar contracts
Face
value
£66.0
€6.0
$18.0
Face
value
£99.7
€4.8
$16.8
Maturing
Maturing
between
within
1 and 2
1 year
years
£66.0
€6.0
$18.0
–
–
–
Maturing
Maturing
between
within
1 and 2
1 year
years
£74.7
€4.8
$16.8
£25.0
–
–
NON-DERIVATIVE FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Non-derivative financial assets consist of cash at bank, short-term investments, trade receivables, other receivables and accrued income.
Non-derivative financial liabilities consist of borrowings, trade payables, deferred consideration, other payables and accruals.
Fair value
(US$)
(2.1)
(0.8)
(0.7)
(3.6)
Fair value
(US$)
12.6
0.2
(0.5)
12.3
STRATEGIC REPORT
GOVERNANCE
129
FAIR VALUE OF NON-DERIVATIVE FINANCIAL ASSETS AND FINANCIAL LIABILITIES
With the exception of the Senior Notes due 2022 and Convertible Bonds, the fair values of all non-derivative financial instruments approximate to
the carrying value in the Balance Sheet.
The following methods and assumptions have been used to determine fair values:
> the fair values of cash at bank, overdrafts and short-term deposits approximate their carrying values because of the short-term maturity of these
instruments (see note 16);
> the fair value of trade and other receivables and payables, accrued income and costs, and deferred consideration approximate their carrying values
(see notes 17 and 20 respectively);
> an investment classified as available-for-sale was carried at fair value in the Balance Sheet, which was determined according to the binding
agreement with a third party for the sale of the asset (see note 15);
> the carrying amount of deferred satellite payments represents the present value of future payments discounted, using an appropriate rate, at the
period end. This carrying amount approximately equals fair value (see note 19);
> the Senior Notes due 2022 are reflected in the Balance Sheet net of unamortised arrangement costs and net issuance premium of $8.7m and $7.6m,
respectively (see note 19). The fair values of the Senior Notes due 2022 are based on the market price of the bonds and are reflected in the table below;
> the EIB Facility is reflected in the Balance Sheet net of unamortised arrangement costs of $0.6m (2013: $1.1m). The fair value approximates the
carrying value (see note 19);
> the Ex-Im Bank Facilities are reflected in the Balance Sheet net of unamortised arrangement costs of $18.9m (2013: $18.1m). The fair value
approximates the carrying value (see note 19); and
> the liability component of the Convertible Bonds is reflected in the Balance Sheet on an amortised cost basis, net of unamortised arrangement costs of
$nil (2013: $1.0m) (see note 19). The fair value of the Convertible Bonds is based on the market price of the bonds and is reflected in the table below.
(US$ in millions)
Carrying
Fair value
amount
amount
Convertible Bonds
–
1,000.0
301.3
–
992.5
418.7
Carrying
Fair value
amount
amount
850.0
–
325.6
885.6
–
392.0
33. DISPOSAL GROUPS HELD FOR SALE
On 7 November 2014, the Group announced that it had entered into binding agreements to sell its 19% holding in SkyWave to ORBCOMM Inc. for total
proceeds of $32.9m. The investment in SkyWave, with a carrying amount of $23.5m, was reclassified to assets held for sale. As the investment had
been categorised as an available-for-sale financial asset, it was remeasured to its fair value of $32.9m as at 31 December 2014. The resulting gain was
recognised through other comprehensive income. The sale subsequently closed on 2 January 2015 and the gain was reclassified to profit at that time.
On 3 February 2014, following regulatory and other approvals, the Group announced completion of the sale of the majority of its retail energy business to
RigNet, Inc. (‘RigNet’). The sale included the Group’s microwave and WiMAX networks in the US Gulf of Mexico, VSAT interests in the UK, the US and Canada,
telecommunications systems integration business operating worldwide and retail L-band energy satcoms business. In addition, the Group sold its interest
in retail energy-related teleport assets located in Moscow. Total fair value of the net assets of the disposal group as at 31 December 2013 was $23.8m and
included assets classified as held for sale of $42.8m and liabilities directly associated with assets held for sale of $19.0m. Total proceeds on the sale of the
retail energy business and related assets were $27.0m.
34. CAPITAL COMMITMENTS
The Group had authorised and contracted but not provided for capital commitments as at 31 December 2014 of $504.0m (2013: $713.3m).
These amounts primarily represent commitments in respect of the Group’s GX and S-Band satellite programmes.
35. CONTINGENT LIABILITY
The Group has received enquiries from Her Majesty’s Revenue and Customs (‘HMRC’) in respect of arrangements which have been entered into in
prior periods. The potential tax liability in relation to these enquiries is estimated to be in the region of $18m. The Group has sought external advice
and management does not believe that a material economic outflow is probable; therefore no provision has been recorded in these financial
statements. However, this disclosure has been made in light of the ongoing enquiries being made by HMRC.
No accurate estimation of the time required to settle this matter can currently be given.
130
36. RELATED PARTY TRANSACTIONS
In the normal course of operations the Group engages in transactions with its equity-owned investees NTS Maritime Limited, Navarino Telecom SA and JSAT
Mobile Communications Inc. These transactions represent sales of airtime and equipment and are measured at the amounts exchanged. Group revenue
from the related parties for the 2014 financial year was $34.0m, $0.1m and $22.0m, respectively (2013: $31.3m, $0.8m and $19.4m, respectively). The
amount receivable from the related parties at 31 December 2014 was $14.5m, $0.8m and $2.7m, respectively (2013: $14.8m, $0.3m and $3.1m, respectively).
Amounts owing to the Executive and Non-Executive Directors as at 31 December 2014 and 2013 were $6.2m and 3.4m, respectively, and relate to
remuneration earned in the normal course of operations (see note 8).
37. PRINCIPAL SUBSIDIARY UNDERTAKINGS
At 31 December 2014, the Company had investments in the following principal subsidiaries that have a significant impact on the consolidated results and
total assets of the Group. To avoid a statement of excessive length, details of subsidiaries and associates which are not significant have been omitted from
this list. A full list of subsidiaries and associates will be annexed to the Company’s next annual return to be filed with the Registrar of Companies.
Inmarsat Finance plc
Inmarsat Global Limited
Inmarsat Group Limited
Inmarsat Investments Limited
Inmarsat Leasing (Two) Limited
Inmarsat Navigation Ventures Limited
Inmarsat Hellas Satellite Services SA
Inmarsat Employment Company Limited
Inmarsat Canada Holdings Inc.
Inmarsat Solutions B.V.
Inmarsat Solutions (US) Inc.
Segovia, Inc.
Inmarsat Solutions Pte Limited
Inmarsat Solutions AS
Inmarsat Mobile Networks Inc.
Inmarsat New Zealand Limited
Inmarsat Solutions (Canada) Inc.
Inmarsat Solutions Global Limited
TC Communications Pty Ltd (1)
Principal activity
Country of
incorporation and
operation
Interest in
issued
ordinary
share capital
at 31 December
2014
Interest in
issued
ordinary
share capital
at 31 December
2013
Finance company
Satellite telecommunications
Holding company
Holding company
Satellite leasing
Operating company
Satellite telecommunications
Employment company
Holding company
Operating company
Operating company
Operating company
Operating company
Operating company
Operating company
Operating company
Operating company
Operating company
Operating company
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Greece
Jersey
Canada
The Netherlands
USA
USA
Singapore
Norway
USA
New Zealand
Canada
England and Wales
Australia
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(1) TC Communications Pty Ltd was renamed Inmarsat Australia Pty Ltd in October 2014.
38. EVENTS AFTER THE BALANCE SHEET DATE
On 7 November 2014, the Group announced that it had entered into binding agreements to sell its 19% holding in SkyWave to ORBCOMM Inc. for total proceeds of
$32.9m. Subsequently, the sale closed on 2 January 2015. As at 31 December 2014, the Group reclassified the investment in SkyWave to assets held for sale and
remeasured the asset to fair market value, recognising an after-tax gain of $8.0m, in other comprehensive income. The gain was reclassified to profit in 2015.
During 2014, LightSquared elected to restart Phase 2 of the Cooperation Agreement and as a result, recommenced quarterly payments to Inmarsat.
On 2 January 2015, Inmarsat issued a default notice to LightSquared indicating the $17.5m payment due 31 December 2014 had not been received in
accordance with the quarterly payment schedule. However, this payment was subsequently received on 25 February 2015. As at 31 December 2014,
no revenue had been recognised in respect of the payment owing from LightSquared, due to the uncertainty of receiving the payment.
Subsequent to 31 December 2014, other than the events discussed above, there have been no other material events which would affect the
information reflected in the consolidated financial statements of the Group.
STRATEGIC REPORT
GOVERNANCE
131
COMPANY BALANCE SHEET
(US$ in millions)
Assets
Non-current assets
Investments(1)
Other receivables(2)
Deferred income tax asset
Current assets
Trade and other receivables(3)
Current income tax asset
Total assets
Liabilities
Current liabilities
Trade and other payables(4)
Current income tax liabilities
Borrowings(5)
Borrowings(5)
Total liabilities
Net assets
Ordinary shares
Share premium
Convertible Bonds reserve
Other reserves
Retained earnings
Total equity
As at
31 December
2014
As at
31 December
2013
1,079.6
73.3
0.1
1,153.0
1,071.1
56.3
1.0
1,128.4
1.7
1.2
–
2.9
1,155.9
1.6
1.2
8.4
11.2
1,139.6
9.0
4.1
–
13.1
5.9
–
327.6
333.5
304.4
317.5
838.4
–
333.5
806.1
0.3
687.6
56.9
59.6
34.0
838.4
0.3
687.4
56.9
53.0
8.5
806.1
(1) Investments consist of a $1,007.8m investment in Inmarsat Holdings Limited (2013: $1,007.8m) and $71.8m of capital contributions to Group companies in respect of share-based payments
(2013: $63.3m).
(2) Other receivables consist of $73.3m amounts due from Group companies (2013: $56.3m).
(3) Trade and other receivables consist of $1.2m amounts due from Group companies (2013: $1.2m).
(4) Trade and other payables consists of $1.6m due to shareholders in respect of dividends paid during 2014 (2013: $1.4m), accruals of $2.8m (2013: $3.1m) and amounts due to Group companies
of $4.6m (2013: $1.4m).
(5) Borrowings comprise the Convertible Bonds discussed in note 19 to the consolidated financial statements.
The financial statements of the Company, registered number 4886072, on pages 131 to 133 were approved by the Board of Directors on 5 March 2015
and signed on its behalf by:
RUPERT PEARCE
TONY BATES
132
COMPANY CASH FLOW STATEMENT
(US$ in millions)
Cash flow from operating activities
Cash used in operations
Interest received
Net cash used in operating activities
Cash flow from investing activities
Dividends received from Group companies
Net cash from investing activities
Cash flow from financing activities
Interest paid on Convertible Bonds
Intercompany funding
Net increase in cash and cash equivalents
Movement in cash and cash equivalents
At beginning of year
Net decrease in cash and cash equivalents
As reported on the Balance Sheet (net of bank overdrafts)
At end of year, comprising
2014
2013
4.9
–
4.9
(1.8)
0.3
(1.5)
225.8
225.8
157.8
157.8
(212.6)
(5.0)
(13.0)
(230.6)
0.1
(200.5)
(5.0)
49.2
(156.3)
–
1.6
0.1
1.7
1.6
–
1.6
1.7
1.7
1.6
1.6
COMPANY STATEMENT OF CHANGES IN EQUITY
(US$ in millions)
Balance at 1 January 2013
Dividends paid
Issue of share capital
Dividends paid
Ordinary
share
capital
Share
premium
account
Convertible
Bonds
reserve
Share
option
reserve
Other
reserve(1)
0.3
–
–
–
0.3
–
–
–
–
0.3
687.4
–
–
–
687.4
–
0.2
–
–
687.6
56.9
–
–
–
56.9
–
–
–
–
56.9
56.5
–
–
5.0
61.5
–
–
–
1.0
62.5
(12.0)
–
–
3.5
(8.5)
–
–
–
5.6
(2.9)
(1) The other reserve relates to ordinary shares held by the employee share trust.
Accumulated
profit
77.4
133.2
(202.4)
0.3
8.5
238.7
–
(212.8)
(0.4)
34.0
Total
866.5
133.2
(202.4)
8.8
806.1
238.7
0.2
(212.8)
6.2
838.4
STRATEGIC REPORT
GOVERNANCE
133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF ACCOUNTING
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by
the European Union and IFRS as issued by the International Accounting Standards Board.
The accounting policies and financial risk management policies and objectives, where relevant to the Company, are consistent with those of the
consolidated Group as set out in notes 2 and 3 to the consolidated financial accounts.
INCOME STATEMENT
The Company has taken advantage of the exemption available under Section 408 of Companies Act 2006 and has not presented an Income
Statement. The profit for the year ended 31 December 2014 was $238.7m (2013: $133.2m).
AUDITOR’S REMUNERATION
During the year, the Company paid its external auditor $0.2m for statutory audit services (2013: $0.2m).
EMPLOYEE COSTS AND DIRECTORS’ REMUNERATION
The average monthly number of people employed during the year was one (2013: one). Total staff costs for 2014 were $0.5m (2013: $3.0m).
Full details of Directors’ remuneration and Directors’ share options and share awards are given in the Remuneration Report.
FOREIGN CURRENCY TRANSLATION
Accounting for foreign currency transactions of the Company is consistent with that of the Group, which is disclosed in note 2 to the consolidated
financial statements.
SHARE CAPITAL
The share capital of the Company is disclosed in note 24 to the Group’s consolidated financial statements.
FINANCIAL INSTRUMENTS
The IFRS 7, ‘Financial Instruments’ disclosures, where relevant to the Company, are consistent with that of the Group as set out in note 32 to the
consolidated financial statements.
The differences between the Group and the Company in relation to intercompany balances are $74.5m (2013: $57.5m) amounts due from Group
companies and $4.6m (2013: $1.4m) amounts due to Group companies, which eliminate on consolidation. The Directors consider the carrying value
of the intercompany balances to approximate to their fair value.
CASH USED IN OPERATIONS
Reconciliation of profit for the year to net cash outflow from operating activities.
(US$ in millions)
Adjustments for:
Income tax expense/(credit)
Finance expense(1)
Finance income
Dividend receivable
Non-cash employee benefit costs
Changes in net working capital:
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash inflow from/(used in) operations
(1) Includes the impact of a non-recurring adjustment to interest on the Convertible Bonds.
2014
2013
238.7
133.2
7.8
(17.1)
(3.6)
(225.8)
(1.8)
(2.6)
30.6
(3.2)
(157.8)
1.2
(0.4)
7.1
4.9
0.6
(3.8)
(1.8)
134
GLOSSARY OF TERMS
Due to the technical nature of satellite communications and financial reporting we use a number of terms and abbreviations in this Annual Report and
Accounts that are widely used within those industries but are less commonly used by our broader community of stakeholders. The principal ones are
summarised below.
A
D
ACARS
Aircraft Communications Addressing and Reporting System is a digital
datalink system for transmission of short messages between aircraft and
ground stations via airband radio or satellites.
DEFINED BENEFIT AND DEFINED CONTRIBUTION SCHEMES
Defined benefit pensions schemes provide post-employment benefits
based on an employee’s final salary. Defined contribution pension
schemes are schemes into which Inmarsat makes fixed contributions
based on a percentage of an employee’s salary.
ACTIVE TERMINAL
A terminal that has been used to access commercial services at any time
during the preceding 12 months and is registered with one of our services
at the period end. It includes the average number of certain handheld
terminals active on a daily basis during the final month of a period and
excludes M2M terminals.
ADS-C
Automatic Dependent Surveillance – Contact provides an automated
two-way surveillance technology through which periodic reporting rates can
be specified between air traffic control systems and aircraft avionics systems.
ALPHASAT
A satellite developed with the European Space Agency and launched in
2013. It supplements our I4 satellite constellation.
ATC (ALSO ACGC OR CTC)
‘Ancillary Terrestrial Components’ provide communications services
from ground stations either as stand-alone services or to complement
satellite services.
B
BAND
The radio spectrum is divided into different bands which each cover a
section of frequencies that are usually used for a similar purpose. Bands
are allocated to specific uses at international level by the ITU and
regulated at a national level by domestic organisations and governments.
BGAN
‘Broadband Global Area Network’ is a high-speed data satellite network
that spans the globe.
C
COMMISSIONED TERMINAL
A terminal that is registered with one of our services at the period end.
CAGR
The Compound Annual Rate of Growth measures average annual growth
over a period of time and is a key performance indicator for our MSS
wholesale revenues.
CGU
A cash generating unit is the smallest group of assets that generates
cash inflows largely independently from the other parts of the business
and which represents the lowest level at which goodwill is monitored
within the business.
THE COMPANY
Where we refer to the Company we are referring to Inmarsat plc, the
holding company of the Inmarsat Group.
E
EBITDA
‘Earnings before interest, tax, depreciation and amortisation’ is a
key performance indicator used in the commercial and financial
management of the business. It is a non-GAAP measure under IFRS.
F
FANS
Future Air Navigation System. FANS-I/A design is a range of FANS
products. FANS is an avionics system which provides direct data link
communication between the pilot and Air Traffic Controller.
FLEETBROADBAND
Our flagship maritime service providing voice and broadband data
services across the world’s oceans.
G
GAAP
Generally Accepted Accounting Principles is the standard financial
reporting framework as defined by a body of accounting standards and
other guidance used in a given jurisdiction (see IFRS).
GEOSTATIONARY ORBIT
A circular geosynchronous orbit directly above the Earth’s equator.
Satellites in geosynchronous orbit match their orbit to the orbit of the
earth and so remain permanently in the same area of the sky.
GLOBAL XPRESS (GX)
The first high-speed broadband satellite network to span the globe, from
a single operator. It uses powerful beams able to reach small antennas on
earth providing digital connections for aviation, land and maritime use.
GMDSS
Global Maritime Distress and Safety Service. Inmarsat is the only
approved provider of this Maritime Safety Service by the International
Maritime Organization (IMO).
GROUND STATIONS
Our Ground Stations connect Inmarsat satellites to terrestrial networks
and the internet. They are manned 24/7 in locations across the globe and
continuously monitored from our network operations centre in London.
THE GROUP
The Group refers to Inmarsat plc and all of its subsidiaries. We may also
use ‘we’ and ‘our’ in reference to the Group, depending on the context.
GSPS
Global Satellite Phone Services are our handheld products and services
including IsatPhone Pro and IsatPhone 2.
STRATEGIC REPORT
GOVERNANCE
135
I
R
IAS OR IFRS
International Accounting Standards or International Financial Reporting
Standards are the accounting standards issued by the International
Accounting Standards Board. IFRS is also used to refer to international
GAAP as a whole.
RIGNET INC
A distribution partner and the company that acquired the retail energy
business that we disposed of in 2014.
ICAO
International Civil Aviation Organization.
INMARSAT-2 (I-2), INMARSAT-4 (I-4), INMARSAT-5 (I-5)
The second, fourth and fifth generations of Inmarsat satellites.
Individual satellites in each constellation are numbered F1, F2, F3, etc,
so I-5 F2 refers to the second satellite launched in the fifth generation
of Inmarsat satellites.
ITU
International Telecommunications Union.
K
KA-BAND
The frequency band used by our GX satellites, it has higher bandwidth
than other bands allowing more data to be transmitted over the same
satellite capacity.
KU-BAND
A frequency band used by a number of our products and services that
we procure from other satellite network operators to complement our
own spectrum.
S
SAS
Satellite Access Station is another term for a Ground Station.
S-BAND
The band width we are using for a high-speed broadband service under
development for the EU aviation industry. The programme will see an
Inmarsat S-band satellite fully integrated with a ground network being
developed with our technology partner Alcatel-Lucent. We also use the
term S-band to refer to the S-band programme in general.
SCOPE 1, 2 AND 3 EMISSIONS
Carbon emissions as defined by the greenhouse gas protocol.
Scope 1: All direct greenhouse gas emissions.
Scope 2: Indirect emissions from purchased electricity, heat or steam.
Scope 3: Other indirect emissions including travel.
SEP/INMARSAT GATEWAY
Our Service Enablement Platform for GX delivering customer support,
network services and an app store, it also opens up our networks to
innovators through a developer portal. This is also now referred to as
the Inmarsat Gateway.
L
SWIFTBROADBAND
A global service providing voice and high-speed data simultaneously
through a single installation on an aircraft.
L-BAND
The frequency band used by our I-3 and I-4 satellites.
T
LIGHTSQUARED
A cooperation agreement between Inmarsat, LightSquared LP, Skyterra
Inc and LightSquared Inc for the use of L-band in North America.
M
M2M
Machine-to-machine services and products.
MSS
Mobile Satellite Services.
MBPS
Megabits per second are the units used to measure data transfer rates
in the satellite communications industry.
N
NETWORK AND SATELLITE OPERATIONS COSTS
The costs of operating our ground stations.
O
OWN WORK CAPITALISED
Employee-related costs including salary and travel costs incurred in
bringing property, plant and equipment into use. Own work capitalised
is capitalised as part of the total cost of an asset.
TÉLÉCOMS SANS FRONTIÈRES (TSF)
The telecommunications relief aid organisation, it is a core beneficiary
of our charitable support.
TERMINALS
The consumer hardware used to receive and transmit voice and data
from earth across our satellite network. It includes antenna enabled
hardware such as satellite phones and on-board antennas.
V
VSAT
Very Small Aperture Terminals are small mobile two-way satellite
antennas able to receive and transmit voice and broadband data to a
satellite. VSAT services are typically charged using a fixed monthly fee.
X
XPRESSLINK (XL)
Xpresslink is a fully-integrated Ku-band and L-band service with VSAT
and FleetBroadband terminals.
136
ADDITIONAL INFORMATION
FIVE-YEAR SUMMARY
(US$ in millions)
2014
Revenues
EBITDA
EBITDA %
Profit for year
Net cash inflow from operating activities
Net cash used in investing activities
Total assets
Total liabilities
1,285.9
701.0
54.5%
342.3
341.1
644.8
(424.4)
(156.4)
4,091.9
(2,908.8)
1,183.1
2013
1,261.9
648.8
51.4%
189.1
102.6
597.1
(583.7)
(204.5)
3,868.8
(2,821.0)
1,047.8
2012
1,337.8
694.7
51.9%
293.6
217.4
659.5
(499.1)
(11.1)
3,753.0
(2,627.1)
1,125.9
2011
1,408.5
854.4
60.7%
366.9
249.5
881.6
(702.0)
(340.5)
3,409.1
(2,328.0)
1,081.1
2010
1,171.6
696.1
59.4%
333.5
261.1
744.3
(295.5)
(331.5)
3,158.0
(2,069.3)
1,088.7
Notes:
Segovia is included in the results from 12 January 2010.
Ship Equip is included in the results from 28 April 2011.
NewWave is included in the results from 13 January 2012.
TC Comms is included in the results from 8 May 2013.
Globe Wireless is included in the results from 1 January 2014.
FINANCIAL CALENDAR 2015
6 May
14 May
15 May
29 May
August
October
Annual General Meeting
Ex-dividend date for 2014 final dividend
Record date for 2014 final dividend
2014 final dividend payment date
2015 interim results
2015 interim dividend payment
INMARSAT CORPORATE CONTACTS
Christopher McLaughlin, Senior Vice President, External Affairs
David Boyd, Head of Investor Relations
REGISTERED OFFICE
AUDITOR
BROKERS
REGISTRARS
99 City Road
London EC1Y 1AX
Tel: +44 (0)20 7728 1000
Fax: +44 (0)20 7728 1044
www.inmarsat.com
Deloitte LLP
2 New Street Square
London EC4A 3BZ
J.P. Morgan Cazenove
25 Bank Street
London E14 5JP
SOLICITORS
Credit Suisse
1 Cabot Square
London E14 4QJ
Equiniti Limited
PO Box 4630
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
REGISTERED NUMBER
4886072 England and Wales
Clifford Chance LLP
10 Upper Bank Street
London E14 5JJ
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report constitute ‘forward-looking
statements’ within the meaning of the US Private Securities Litigation
Reform Act of 1995. These forward-looking statements involve risks,
uncertainties and other factors that may cause our actual results,
performance or achievements, or industry results, to be materially
different from those projected in the forward-looking statements.
These factors include: general economic and business conditions;
changes in technology; timing or delay in signing, commencement,
implementation and performance of programmes, or the delivery
of products or services under them; structural change in the satellite
industry; relationships with customers; competition; and ability to
attract personnel. You are cautioned not to rely on these forwardlooking statements, which speak only as of the date of this
Annual Report.
Inmarsat undertakes no obligation to update or revise any forwardlooking statement to reflect any change in its expectations or any
change in events, conditions or circumstances, except where it
would be required to do so under applicable law.
Designed and produced by Gather
www.gather.london
The paper used in this Report is derived
from sustainable sources
Inmarsat plc
99 City Road
London
EC1Y 1AX
United Kingdom
inmarsat.com

INMARSAT PLC ANNUAL REPORT AND ACCOUNTS 2014

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